Company-shareholder engagement on the rise, but number of shareholder proposals continues to be high
New York, 11 March 2013 – Company management teams and boards are showing a greater willingness to have substantive dialogue with their largest shareholders. Yet, efforts have not extended to all investors, and some investors continue to rely on shareholder proposals as a mechanism to trigger dialogue. Addressing the pressure to develop increasingly effective and transparent shareholder communications, today Ernst & Young LLP’s Corporate Governance Center released a new report – Proxy season 2013: Insights on topics of investor focus and expectations of engagement – to help boards and those who support them with timely, data-rich analysis of the top governance topics that investors are raising with businesses this year.
Key observations for 2013 include:
- Investors are formalizing their approach to engagement and some are taking a more global approach, which could further affect evolving engagement practices and expectations.
- Along with engagement, there is increasing discussion around investor stewardship and the governance responsibilities of investors.
- Environmental and social proposals continue to dominate the shareholder proposal landscape.
“Many management teams and boards are showing a greater willingness to have substantive dialogue with shareholders, but it’s clear that shareholder proposals remain a critical engagement tool for investors,” said Allie Rutherford, Associate Director of the Corporate Governance Center at Ernst & Young LLP. “Engagement can present an opportunity to build trust and understanding. A well-developed shareholder communications and engagement plan helps management teams and boards, as appropriate, prepare for constructive dialogue with investors.”
The report shows that investors are focusing on six governance categories this year:
- Director elections: Most investors support shareholder proposals on declassifying boards and adopting majority vote standards for director elections; boards should understand the consequences of not acting on a majority-supported shareholder proposal. Proxy access will continue to play out in 2013.
- Board composition, leadership and diversity: Boards that lack a breadth of diversity may risk becoming under-performing boards, so investors are closely evaluating whether board composition is appropriate, and board leadership strong and independent. Investors are particularly focused on gender diversity, as research shows that companies with more women on their boards outperform companies with fewer or no women directors.
- Executive compensation: Say-on-pay (SOP) continues to remain a priority in 2013. Companies that received high support on their SOP proposals last year are not assured of receiving high marks again in 2013. Investors also continue to engage companies on specific pay practices.
- Corporate political and lobbying activity: The primary focus of investor engagement continues to be closing the transparency gaps for indirect spending through tax-exempt organizations, and ensuring board oversight. Concerns have been raised regarding the return on investment for corporate money spent in the 2012 election and the alignment of these expenditures with company strategy and commitments.
- Corporate environmental and social responsibility: Investors seek increased transparency regarding company sustainability practices and the management of related risks and opportunities. Investors also are looking for the integration of sustainability issues into core governance frameworks, including connecting executive pay to sustainability metrics, having board directors with environmental expertise and strengthening board oversight of these topics.
- Audit committee oversight: No shareholder proposals on this topic are expected this year. However, some investors are asking for enhanced disclosure around the audit committee’s role in establishing and monitoring important aspects of the audit firm relationship.
For more information and to access to Proxy season 2013: Insight on topics of investor focus and expectations of engagement and other reports, visit http://www.ey.com/US/en/Issues/Governance-and-reporting.
About Ernst & Young’s Corporate Governance Center
Ernst & Young’s Corporate Governance Center (EYCGC or the Center) offers balanced insights and data-rich content and analysis that foster alignment and bridges gaps among management, boards of directors and investors – raising awareness, creating understanding and serving as a conduit of information. The Center’s insights and content are supported through its proprietary corporate governance database, relationships with outside governance organizations and ongoing conversations with members of the investor and governance community.
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