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Adhering to Sound Governance Practices

An interview with Michelle Edkins, Managing Director and Global Head of Investment Stewardship, and Ray Cameron, Managing Director and Head of Investment Stewardship, at BlackRock

Michelle Edkins is a Managing Director at BlackRock and Global Head of its Investment Stewardship team of over 40 specialists internationally. Ms. Edkins is responsible for the team’s engagement and proxy voting activities to promote the governance and business practices aligned with long-term value creation by the companies in which BlackRock invests on behalf of clients. She also serves on the firm’s Global Operating, Human Capital and Government Relations Steering Committees. An active participant in the public corporate governance debate, she was named in the NACD Directorship 100 Governance Professionals list the past seven years. She is also a Fellow of the Aspen Institute’s First Movers program and a former Chair of the Board of Governors of the International Corporate Governance Network. She currently serves on a number of industry initiatives to enhance governance and sustainable business practices including the US chapter of the 30% Club, a market initiative to increase the number of women on boards and in senior management, the Sustainability Accounting Standards Board (SASB) Investor Advisory Group and the CECP’s Strategic Investor Initiative. An economist by training, Michelle has also worked in the UK in a number of investment stewardship-related roles and in government roles in her native New Zealand.

Ray Cameron, Managing Director, is the Head of BlackRock’s Investment Stewardship team for the Americas region based in New York. In this role, Mr. Cameron leads a team of specialists responsible for engagement and proxy voting activities in relation to the companies in which BlackRock invests on behalf of clients. Through direct engagement with companies, the team encourages corporate governance practices that support sustainable financial performance over the long-term. Prior to joining BlackRock, he most recently managed the corporate access engagement practice at several investment banking firms, including Stifel and Cowen. In these capacities, he oversaw teams that established and enhanced constructive dialogue with hundreds of portfolio companies’ boards and management teams. Mr. Cameron started his Wall Street career at Morgan Stanley on the institutional equity sales desk, where he recognized the potential of corporate access as a stand-alone business opportunity. He is credited for creating and managing the first fully integrated corporate access team on Wall Street. His team included a diverse group of sector specialists who were responsible for driving engagements in their respective industries and enhancing relationships with corporate boards and management and with internal investment professionals within the firm. He was subsequently recruited to re-engineer the corporate access engagement practice at Lehman Brothers. There, he successfully maintained the entire team through the Lehman bankruptcy filing and the eventual acquisition of equity assets by Barclays.

Over the last several years, the investor community has focused its attention across corporate America. Investors play a more pivotal role than ever in shaping governance policies, and companies must adhere to this ever-changing landscape to not only keep pace, but also stay ahead of the conversation with their investors on key topics including cyber risk, environmental and social issues, unexpected executive departures, boardroom diversity and much more.

C-Suite had the opportunity to discuss these topics with Michelle Edkins, Managing Director and Global Head of Investment Stewardship, and Ray Cameron, Managing Director and Head of Investment Stewardship, at BlackRock. Edkins and Cameron shared their views on how companies may address hot-button topics with their investors, and strategies to prepare for engagement meetings as the marketplace evolves.

C-Suite: In this current age of investor relations/activism, from an investor’s perspective, what advice would you give companies who are facing scrutiny from an investor?

BlackRock: Core investor relations and activism responses are different, but each requires a commitment on the part of the company to listen to the feedback that shareholders are providing, sufficiently engage with those investors to make sure that IR and others have a full understanding of their concerns and expectations, and consider reaching out to other investors to gauge whether there are others with similar perspectives. That will ensure the board and management are well informed about potential investor responses to whichever course of action they ultimately determine is in the best interests of the company, and may also help shape future investor communications and follow-up engagements.

What can companies do to get ahead of their conversations with investors? What are some sound engagement practices?

BlackRock: One of the most valuable things companies can do is to ensure that their reporting and other disclosures are meeting investors’ informational needs. Corporate reporting, both mandatory and voluntary, continues to evolve. Companies should think of their reporting as a form of engagement; in fact, it’s the first line of engagement. They should aim to provide the most complete explanation possible of their long-term strategy, how it is informed by the company’s purpose and culture, and the policies and sound business practices that will help the company meet its strategic objectives and deliver long-term sustainable financial performance. Engagement conversations are likely to be more productive when investors can fully prepare based on quality disclosures.

What are the greatest challenges for companies going into investor meetings? How can companies prepare better for these meetings?

BlackRock: Mismatched expectations about the purpose and focus of the meeting are a challenge and a frustration. BlackRock Investment Stewardship seeks to make each engagement constructive for both the company and our analysts in order to build mutual understanding. We are committed to providing transparency to companies so that our stance on corporate governance is clear—materials including our engagement priorities, voting guidelines and voting records are available on our website. In our experience, it is important to have a clear sense of what each party hopes to cover ahead of each engagement, ideally in the form of an agreed agenda, so that the investor’s questions can be addressed and the company is clear about any follow-up expected. For instance, if there is concern that a company’s governance practices are not aligned with long-term shareholder interests, which may result in votes against management at the next shareholder meeting, the company should have a chance to ask about our policy on the issue of concern and explain and justify its approach.

As the theme of this issue of C-Suite focuses on governance outlook, what do you anticipate will be the critical issues boards and executive management will face in 2019? What are some key governance practices companies may implement to address these types of issues?

BlackRock: As we turn our attention to 2019, the critical issues confronting boards and the executive management team are likely to be similar to the ones they faced in the past year. Board quality and diversity will certainly remain a focus for many investors, including BlackRock. We believe a likely area of focus will be how well boards prepare for and manage through a potential crisis event. This may include the sudden departure of a senior executive, reputation risks associated with workplace conduct, a cyber event or a proxy contest. We also expect a continued focus on disclosure of human capital management practices as well as operational sustainability, including relevant environmental and social factors that are important to a company’s long-term economic performance. While BlackRock has engaged with companies on all of these issues in the past, we are by no means at the finish line. As the marketplace evolves, companies must evolve as well. Shareholders have an important role to play in that process.

Can you comment on the value of diversity on corporate boards? What do you anticipate progression towards greater boardroom diversity will look like in 2019? How would you measure progress?

BlackRock: BlackRock recognizes that diversity has multiple dimensions, including gender, ethnicity and age, as well as professional characteristics, such as a director’s industry, area of expertise and geographic location. In a commentary that we published last year on how BlackRock engages on board diversity, we explain that corporate boards are, first and foremost, decision-making bodies. Academic research has shown that diverse groups generally make better decisions. Further, ISS recently published a study that found results suggesting that diverse boards helped companies improve their risk management. Therefore, as a fiduciary to our clients, board composition and diversity matter.

We focus on board quality and effectiveness because high-performing boards ensure strong management, which in turn supports sustainable financial performance. The other important role that boards play, in addition to decision making, is setting the tone at the top. A diverse board is a visible commitment to employees, customers and other key external partners, and to best practices in leadership. While we have observed some notable trends towards increased gender diversity in U.S. boardrooms, there is still work to be done.

Issue 29: Outlook 2019

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