Investors elect the board as their representatives to guide and oversee management, its strategic plan and related performance. For many years, other than in the occasional contested election, investors had little say over director nominations, and typically the election of management’s slate was a mere formality.
Much has changed, with a more complex, global and interconnected business environment, known and emerging risks seemingly lurking at every corner, heightened scrutiny of executive and board compensation and corporate governance practices, and record levels of activism. The latter includes hedge fund and other contested elections, pressure to adopt proxy access, and regulatory approval of universal ballots.
At many companies, the proxy statement is an investor’s primary window into the boardroom. Increasingly, we are seeing companies—having for several years focused primarily on the CD&A and telling their pay-for-performance story—now re-focusing on their board disclosures. They are highlighting relevant aspects of diversity (including gender, ethnicity/geographic background, age and tenure), and perhaps most important, diversity of relevant skills and qualifications.
We typically see board qualifications and diversity presented in three ways:
To better appreciate the visual ways in which companies are increasingly highlighting board skills and diversity, please consider the following disclosure innovations, which recently have been growing in their adoption and utilization.
In our view, these types of visual disclosures help to highlight and draw attention to key aspects of a company’s board skills and diversity story. As the board evolves, this story can change significantly. We have seen many cases where one or two long-tenured directors are replaced by new directors with unique skill sets. This can have a dramatic impact on average tenure, gender, age, skills and other measures of diversity.
Ron Schneider is the Director of Corporate Governance Services for Donnelley Financial Solutions. He can be reached at email@example.com.