February 12, 2016
Shareholder engagement is on the rise and will only continue as investors seek to better understand a company’s practices and policies. As a result, more companies are taking a proactive approach to communicate how their governance policies align with company strategy and long-term value creation. In the S&P 500, the percentage of companies mentioning shareholder outreach has doubled since Say on Pay was enacted in 2011, according to a recent Equilar study. In the S&P 100, that figure has grown from 2% to 55% in the same time frame.
The most important components of these engagements are preparedness and having the right people in the room. Now more than ever, investors have expectations of communicating with board members. Now more than ever, investors have expectations of communicating with board members, so companies should better prepare their boards and set policies and protocol for these engagements. During Equilar’s first-ever Board Leadership Forum in early February—co-hosted with Nasdaq—experts from PwC’s Center for Board Governance, Capital Group, Frederic W. Cook & Co., and RR Donnelley sat down for a candid roundtable that encapsulated the engagement process from all angles.
“Do we want to engage with directors? Absolutely. Shareholder engagement helps us better understand the thinking in the boardroom. But boards must select directors who are going to communicate well with shareholders. Consider preparation in advance of shareholder meetings.”
“Almost every engagement involves some element of compensation—that will not change.”
“Say on Pay has been enormously influential, but it’s caused a homogenization of pay practices and fewer pay outliers. The only thing I want homogenized is my milk—we expect pay programs to vary company to company.”
“The CD&A has gone from a compliance document to a document that’s crisp, transparent, and for the benefit of shareholders. SEC used to be the audience, now it’s investors.”
“Shareholder engagement cannot be an ad hoc process. Set process around your company’s communication with shareholders. Everyone on your board should know the policy/protocol of engaging with shareholders.”
“There is a generational difference. Older directors are more traditional and have no expectations of dealing with shareholders and may not be as comfortable.”
“Think like an activist, and understand what your activist wants. In fact, having an activist on your board may not be so bad.”
Equilar’s data and tools provide executives, boards and investors the information they need to prepare for shareholder meetings throughout the year. For more information, please visit our Shareholder Engagement portal.
For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at firstname.lastname@example.org. Belen Gomez contributed to this article.