Proxy Season Preview: Tips and Trends for 2019

1. Proxy Season Preview: Tips and Trends for 2019 • Presented by: • Harry R. Beaudry, General Counsel & Secretary, Noble Midstream Partners LP • Leana Garipova, Associate, Akin Gump Strauss Hauer & Feld LLP • Patrick Hurley, Partner, Akin Gump Strauss Hauer & Feld LLP • January 15, 2019

2. Agenda • Shareholder Initiatives in the Spotlight • Key Trends in Proxy Statement Disclosure • Recent Regulatory Developments and Updates

3. Shareholder Initiatives in the Spotlight • Trending Shareholder Proposals • Political Contributions and Lobbying Disclosure Proposals • Special Meeting • Climate Change

4. Lobbying and Political Contributions • The most common type of social proposal in 2018. • No proposals passed; 23 proposals received over 30% support. • 12 proposals withdrawn (possibly due to shareholder engagement). • 294 companies voluntarily disclosed their election-related spending in 2018.

5. Lobbying and Political Contributions • In 2018, Exxon Mobil Corporation, Chevron Corporation, Chesapeake Energy Corporation and Duke Energy Corporation, among others, included a stockholder proposal regarding lobbying reports in their annual proxy statements. • Annual disclosure of: • policy and procedures governing lobbying and grassroots lobbying communications; • payments used for lobbying (including amount and the recipient); • membership and payments to any tax-exempt organization that writes and/or endorses model legislation; and • description of management’s and the Board’s decision-making process and oversight for making payments. • Boards of each of the companies recommended stockholders to vote against this stockholder proposal. • None of these stockholder proposals received the required stockholder support. • Exxon Mobil Corporation: 73.8% AGAINST. • Chevron Corporation: 68.5% AGAINST. • Chesapeake Energy Corporation: proposal withdrawn. • Duke Energy Corporation: 63% AGAINST.

6. Special Meeting • A significant increase in 2018 in proposals relating to the right of shareholders to call a special meeting (77 in 2018 vs. 23 in 2017). • The majority of the proposals sought to lower the threshold required to call a special meeting from 25% to 10%. • Seven proposals passed. • BlackRock supports between 15-25%; State Street supports lowering threshold if existing threshold is over 25% and proposal is for at least a 10% threshold. • 60% of S&P 500 companies currently allow shareholders to call a special meeting.

7. Climate Change • Climate change shareholder proposals were the most prevalent type of environmental proposals. • Fewer reached vote than in prior years (possibly due to shareholder engagement). • Four proposals passed in 2018; proposals averaged 32% support.

8. Climate Change • Exxon Mobil Corporation 2017 Proxy Statement • Exxon included a stockholder proposal in its proxy statement requesting an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies. • Although the board recommended stockholders vote against this proposal, stockholders approved it. • Subsequently posted “Meeting global needs – managing climate change business risks” to its web site and included web link in 2018 proxy. • Kinder Morgan, Inc. and Anadarko Petroleum Corporation 2018 Proxy Statements • Kinder Morgan and Anadarko included a stockholder proposal in their proxy statements requesting an assessment of the long-term portfolio impacts of scenarios consistent with limiting the global increase in temperature to 2 degrees Celsius. • Although both boards recommended stockholders vote against these proposals, stockholders approved both.

9. Climate Change • Environmental, Social and Governance (ESG)disclosure should be tailored to company and shareholders. • Disclosure may be in proxy statement or in separate report on website. • In 2017, 85% of S&P 500 companies published sustainability or corporate responsibility reports. • In October 2018, rulemaking petition submitted to SEC requesting standardized framework under which companies would be required to disclose identified ESG factors related to their operations.

10. Climate Change • Companies may make proactive disclosures voluntarily or as a result of shareholder engagement (other than as a result of proposal approve annual meeting). • Marathon Petroleum Corporation (MPC) 2018 Proxy Statement “Governance Highlights” section: “Published Inaugural Report: Perspectives on Climate-Related Scenarios: Risks and Opportunities In October 2017, MPC published the Perspectives on Climate-Related Scenarios: Risks and Opportunities report modeled on the disclosures recommended by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (or TCFD) and providing a detailed look at our Board’s risk management oversight, climate-related scenario analyses, asset optimization and portfolio management. As conveyed in the report, MPC is well positioned to remain a successful company into the future, even under the carbon-constrained future modeled in the International Energy Agency’s hypothetical 450 Scenario. MPC has invested billions of dollars in energy efficiency, emissions reductions, diversifying our business and hardening our facilities against extreme weather events. Our refineries are among the most energy efficient in North America. Our facilities have earned more of the U.S. EPA’s ENERGY STAR awards recognizing refineries than all other refining companies combined, and we also apply this focus on energy efficiency to our transport trucks and our inland marine fleet, as well as to our research efforts.”

11. Key Trends in Proxy Statement Disclosure • Board Diversity • Cybersecurity • Perquisites • Pay Ratio

12. Hot Topic: Board Diversity • Board diversity is a central theme in the 2019 proxy season. • Many companies, institutional investors and industry groups have recognized the benefits of a diverse board of directors, and have advocated for public companies to increase the representation of women and minorities on their boards. • Examples: • BlackRock has stated that companies should have at least two women directors. • Beginning in 2020, State Street will vote against boards without any female directors. • Beginning in 2019, if a board lacks women, Glass Lewis will recommend votes against the election of the nominating committee chair (and possibly other committee members). • ISShas adopted a similar policy that will take effect in 2020.

13. Board Diversity: Board Accountability Project 2.0 • In 2018, New York City Comptroller sent letters to 151 companies asking them to adopt a prominent matrix table in the annual proxy statement describing the skills, gender, race, and ethnicity of individual directors and use refreshment opportunities to bring new viewpoints. • Results: • 80% of companies responded to the letter. • 85 companies substantively engaged and adopted new nominating processes. • 35 companies now disclose director diversity details. • 49 companies elected new diverse directors. • 24 companies committed to include diverse candidates in every board search.

14. Board Diversity Disclosure • ConocoPhillips 2018 Proxy Statement

15. Occidental Petroleum Corporation 2018 Proxy Statement

16. Vectren Corporation 2018 Proxy Statement

17. Board Diversity Disclosure • Pioneer Natural Resources Company 2018 Proxy Statement “Composition Highlights of Director Nominees” section: “Diversity of skills and experience: In assessing the composition of the Pioneer Board, the Board and its Nominating and Corporate Governance Committee strive to achieve an overall balance of diversity of backgrounds and experience at policy-making levels with a complementary mix of skills and professional experience in areas relevant to the Company’s business and strategy. If a third party search firm is engaged to assist in seeking candidates for the Board, Pioneer’s Corporate Governance Guidelines provide that the search firm will affirmatively be instructed to seek to present women and minority candidates.”

18. Board Diversity: California S.B. 826 • California law signed on September 30, 2018. • Application • Corporations, whether organized in California or elsewhere, “with securities listed on a major United States stock exchange” and principal executive offices located in California, as disclosed on Form 10-K filed with the SEC. • Requirements • By December 31, 2019, any corporation subject to the law must have at least one female director. • By December 31, 2021, the applicable minimum number will increase to: • three female directors if the company has six or more directors; • two female directors if the company has five directors; and • one female director if the company has four or fewer directors.

19. Consequences for Noncompliance • Pay fines to the Secretary of State • First time offense = $100,000 • Each subsequent offense = $300,000 • Reputational damage • By July 1, 2019, the secretary of state’s website will publish a report documenting the number of corporations subject to the new law that have at least one female director. • Beginning no later than March 1, 2020, the secretary of state’s website will publish an annual report of: • the number of corporations in compliance with the new requirements during the preceding calendar year; • the number of publicly held corporations that moved their U.S. headquarters to California from another state or out of California into another state during the preceding calendar year; and • the number of publicly held corporations that were subject to this section during the preceding year but are no longer publicly traded.

20. California S.B. 826 • Looking Forward • This new law could spur board diversity legislation in other jurisdictions. • This new law may also be challenged on constitutional (including equal protection) and state law grounds.

21. Board Diversity Disclosure Key Takeaways • Examine disclosures about board composition in proxy statements. • Consider any necessary updates to D&Oquestionnaires. • For example, if companies intend to disclose a form of the diversity and skills matrix, the company may need certain additional information from directors, such as specific types of skills and experiences, sexual orientation, gender, age, race or ethnicity.

22. Cybersecurity Disclosure

23. Cybersecurity Disclosure Developments • SEC Report of Investigation • On October 16, 2018, the SEC issued a Report of Investigation detailing the SEC Enforcement Division’s consideration of the internal accounting controls of nine companies that were victims of a cyber fraud. • These companies lost a combined $100 million after their internal accounting controls failed to protect against fraudulent email schemes. • Guidance on Public Company Cybersecurity Disclosures • In February 2018, the SEC released an interpretive guidance for public companies relating to disclosures of cybersecurity risks and incidents, disclosure controls and procedures and insider trading policies. • The guidance emphasizes importance of board oversight and disclosure of board’s oversight role if cyber risk is considered material.

24. Cybersecurity Disclosure Key Takeaway • Consider the requirement to disclose the board’s role in risk oversight in proxy statements. • Marathon Petroleum Corporation (MPC) 2018 Proxy Statement “the Board’s Role in Risk Oversight” section: • “Cybersecurity Risk Oversight • Cybersecurity, a rapidly evolving risk area, continues to be a focus area of attention by our Board. While we have invested significantly in the protection of our information and technology systems and maintain what we believe are strong security controls, cybersecurity threats to large organizations from hackers, state-sponsored intrusion and other methods have become increasingly prevalent. Accordingly, our Board receives data security updates that include cybersecurity resilience information and emerging trends, as well as progress toward key Company initiatives in this area.”

25. Perquisite Disclosure

26. Perquisite Disclosure • From 2011 through 2015 The Dow Chemical Company omitted disclosure of approximately $3 million worth of perks received by its CEO in its annual proxy statements. • Perks: • Personal aircraft use; • Club memberships; • Limited use of personal assistant office time; and • Membership fees to sit on the board of a charitable organization.

27. Perquisite Disclosure Key Takeaway • Consider the requirement to disclose perks and other personal benefits in proxy statements. • Perks and other personal benefits of $10,000 or more must be reported in the “All Other Compensation” column of the Summary Compensation Table. • Two-step analysis: • An item is not a perquisite or personal benefit if it is “integrally and directly” related to the performance of the executive’s duties. • Otherwise, an item is a perquisite or personal benefit if it confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees.

28. Pay Ratio Disclosures • The 2018 proxy season was the first year for pay ratio disclosures. • The pay ratio disclosure rules require certain public companies to disclose: • the annual total compensation of the CEO; • the median of the annual total compensation of all employees of the company other than the CEO; and • the ratio of these two amounts. • The pay ratio disclosure is required in any Form 10-K, proxy statement, information statement, or registration statement that is required to include executive compensation disclosure pursuant to Item 402 of Regulation S-K.

29. Pay Ratio 2018 Key Results • Board intelligence service provider Equilar reported that: • The median CEO pay ratio was 140:1; • The median employee pay was approximately $60,000; and • The median CEO compensation was approximately $11.7 million. • Companies in the consumer staples and consumer discretionary industries had the highest pay ratios and companies in the financial, utilities and energy industries had the lowest pay ratios. • Larger companies by revenue had higher ratios than smaller companies by revenue. • Ratios also increased as the size of the employee population increased. • Pay ratio disclosure was typically placed outside of the CD&A because anything included in the CD&A must be reviewed and approved by the compensation committee.

30. Pay Ratio: Looking Ahead • Companies must assess annually whether their workforce composition or compensation arrangements have materially changed. • Generally, the median employee is determined once every three years unless there has been a change in the company’s employee population or employee compensation arrangements that the company reasonably believes would result in a significant change to its pay ratio disclosure. • If no such changes, the company must disclose that it is using the same median employee in its pay ratio calculation and briefly describe the basis for its reasonable belief. • If the company changes its methodology or its material assumptions, adjustments, or estimates from those used in its pay ratio disclosure for the prior fiscal year, and the effects of any such change are significant, the company must briefly describe the change and the reasons for the change.

31. Recent Regulatory Developmentsand Updates • Shareholder Proposal Guidance Staff Legal Bulletin 14J • Recent NYSE Development • Hedging Disclosure Rules • Pay Versus Performance & Clawbacks • Corporate Governance Fairness Act

32. Staff Legal Bulletin 14J • In 2017, the Corporation Finance Staff published Staff Legal Bulletin No. 14I to provide additional guidance regarding shareholder proposal rules. • SLB No. 14I addressed the “ordinary business” basis for excluding a shareholder proposal under Rule 14a-8(i)(7) and the “economic relevance” basis for excluding a shareholder proposal under Rule 14a-8(i)(5). • Ordinary business exclusions (14a-8(i)(7)):If the proposal deals with a matter relating to the company’s ordinary business operations; • Relevance exclusions (14a-8(i)(5)): If the proposal relates to operations which account for less than 5 % of the company’s total assets at the end of its most recent fiscal year, and for less than 5 % of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business. • SLBNo. 14I noted that that “economic relevance” and “ordinary business” issues raise difficult judgement calls that the board is generally best suited to analyze. • SLBNo. 14Isuggested that an analysis by a company’s board of directors explaining why it is appropriate for the company to exclude a particular shareholder proposal from its proxy statement under either Rule 14a-8(i)(7) or Rule 14a-8(i)(5) could assist the Staff’s review of a no-action request. • In October 2018, the Staff published Staff Legal Bulletin No. 14J to give additional guidance to address excluding shareholder proposals under “economic relevance” and “ordinary business” exceptions.

33. Staff Legal Bulletin 14J • Under the SLB No. 14J, companies that are including a board analysis are encouraged to describe the specific substantive factors considered by the board: • The extent to which the proposal relates to the company’s core business activities. • Quantitative data, including financial statement impact, related to the matter that illustrate whether or not a matter is significant to the company. • Whether the company has already addressed the issue in some manner, including the differences – or the delta – between the proposal’s specific request and the actions the company has already taken, and an analysis of whether the delta presents a significant policy issue for the company. • The extent of shareholder engagement on the issue and the level of shareholder interest expressed through that engagement. • Whether anyone other than the proponent has requested the type of action or information sought by the proposal. • Whether the company’s shareholders have previously voted on the matter and the board’s views as to the related voting results. • In addition, SLB No. 14J confirmed that the SEC’s policy underlying the “ordinary business” exception rests on two central considerations:  • the proposal’s subject matter; and • the degree to which the proposal (including compensation proposals) “micromanages” the company “by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.” • In evaluating proposals that raise both ordinary business and senior executive and/or director compensation matters, the staff will examine whether the focus of the proposal is an ordinary business mater or aspect of senior executive and/or director compensation.

34. Staff Legal Bulletin 14J Key Takeaways • The Staff will continue to reach its own decision about the appropriateness of excluding shareholder proposals under Rule 14a-8(i)(7) or Rule 14a-8(i)(5), whether or not a board analysis is included as part of the no-action request. • Companies receiving shareholder proposals for the 2019 proxy season that are potentially excludable under Rule 14a-8(i)(7) or Rule 14a-8(i)(5) should evaluate whether to include a board analysis in their no-action requests. • If submitted, it is important to submit an analysis that is “well-developed,” taking into account some of the factors provided as examples in SLB14J.

35. Recent NYSE Development • In March 2018, the SEC approved an amendment to Section 402.01 of the NYSE Listed Company Manual. • Under the amended Section 402.01: • listed companies will not be required to provide hard copies of proxy materials to the NYSE if they are included in an SEC filing available on EDGAR; • listed foreign private issuers and domestic companies that file their proxy materials on EDGAR but on forms other than Schedule 14A, only need to provide the NYSE in electronic format the information sufficient to identify its filing no later than the date proxy materials are distributed to stockholders; and • any listed company whose proxy materials are not included in their entirety (including the proxy card) in a filing on EDGAR is required to provide three physical copies of any proxy materials not available on EDGAR to the NYSE no later than the date proxy materials are distributed to stockholders.

36. Hedging Disclosure Rules • On December 18, 2018, the SEC adopted final rules that require disclosure of hedging practices or policies in any proxy statement or information statement relating to the election of directors. • The final rules implement Section 14(j) of the Securities Exchange Act of 1934, which was enacted by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. • New Item 407(i) of Regulation S-K will require a company to describe any practices or policies it has adopted regarding the ability of its employees or directors to purchase securities or other financial instruments that hedge or offset any decrease in the market value of the company’s equity securities. • Disclosure required by the new rule can be provided within or outside the CD&A. • Already required to disclose in the CD&A, if material, policies on hedging by named executive officers. • If provided outside of the CD&A, a company can satisfy the existing requirement with a cross reference to the new disclosure. • These new rules do not impact 2019 proxy statements. • Companies generally must comply with the new disclosure requirements in proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2019.

37. Pay versus Performance & Clawbacks • Pay-Versus-Performance, § 953(a): • The SEC proposed a rule to implement the Dodd-Frank mandated Pay-Versus-Performance requirement in 2015. • The proposed rule would require disclosure of a table comparing four figures over a five-year period: • compensation “actually paid” to the CEO; • average compensation “actually paid” to the company’s other four named Executive Officers; • the company’s cumulative TSR; and • cumulative TSR of a peer group selected by the company. • Clawbacks, § 954: • In 2015, the SEC proposed rules directing the National Securities Exchanges to implement listing requirements for companies to adopt a clawback policy. • This would require recoupment of incentive compensation from the current or former officers, without a finding of fault, following a material restatement of financials. • Pay versus Performance and clawback rules have not been finalized and there will be no corresponding requirements for 2019. However, the SEC is still required to adopt these rules under Dodd-Frank and companies should be prepared for their passage in the next few years.

38. Corporate Governance Fairness Act • Recent congressional interest in regulation of proxy advisory firms. • In November 2018, the Senate introduced the “Corporate Governance Fairness Act.” • The “Corporate Governance Fairness Act” would require the SEC to regulate proxy advisory firms under the Investment Advisers Act. • Proxy advisory firms would be required to: • file a registration statement with the SEC providing certifications, methodology and financial disclosures; • permit companies an opportunity to comment on draft voting recommendations; and • allow challenges from the subjects of the proxy advisory firm’s voting recommendations. • The likelihood of these legislative initiatives passing is unclear.

39. Questions?

40. Thank you for joining us! Leana GaripovaAssociateAkin Gump Patrick J. HurleyPartnerAkin Gump Harry R. BeaudryGeneral Counsel & SecretaryNoble Midstream Partners LP