How to master shareholder engagement this proxy season
Diligent's leading proxy season gathering brought together over 140 investors, issuers and advisors from the stewardship community last week where expert panels debated a range of topics (under Chatham House rules) from the shift in dialogue around diversity to the pressure being faced by CEOs and some of the new focus areas for investors. Below are some of the key takeaways as boards continue to engage with their shareholders for the season ahead:
- Shareholder engagement is an opportunity: A culture of engagement is one of the best possible defenses against shareholder activism. The best boards are advised to build trust and communicate with their investor base before an issue arises while making time for introspection. This can be achieved with an annual preparedness session where vulnerabilities are assessed both internally and externally with the support of law firms, proxy solicitors, investment banks and PR firms. As campaigns have become more personal under the universal proxy card, directors are encouraged to be more proactive in managing and building their digital footprint as part of the wider digital media strategy while activists are also being much more creative in their use of targeted messaging through new social channels such as podcasts.
- Lackluster succession plans leaving CEOs at risk: While investors have traditionally tended to try to avoid overt campaigns to oust senior executives due to the higher standard of proof required, they are growing emboldened to adapt their approach while increasingly scrutinizing companies’ succession planning. Shareholder activism around operational demands can also be seen as a catalyst for CEO change. At companies seen to have underperformed peers, the CEO will have a target on his or her back whether an activist is calling for their removal or not.
- Diversity: Amid regulatory and political pressure, the pendulum is swinging away from programs and policies that address DEI explicitly. However, while precision of language is evolving, the core strength of the board should be the same. Institutional investors are looking for high performing effective boards and composition – underpinned by diversity of thought – is a critical aspect of that expectation. Board evaluation and refreshment are now more critical than ever with third party assessments highly recommended.
- Compensation: The devil is in the detail when it comes to unvested pay in compensation packages with shareholder alignment cited as a north star for investors. High insider ownership among CEOs is viewed positively by investors who want to see those at the helm thinking like owners. A strong independent board also works to ensure an appropriate counterbalance to management to deliver the required checks and balances. If metrics and performance are aligned, a larger pay packet is more likely to be viewed as justified.
- AI: As regulation evolves, investors want to see disclosure around artificial intelligence oversight, especially in industries where it is most relevant such as technology or at companies where it is considered core to product development. For other industries, it is considered less pressing for now.
The third event in the Stewardship Series was supported by our valued sponsors Olshan Frome Wolosky, Sidley Austin, Schulte Roth & Zabel, Davies, Forward Global and Haystack Needle. For future sponsorship opportunities, please see our special report and event brochure here.
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