One out of five public large-cap companies disclosed a shareholder engagement program in 2012, a figure that grew sharply to 66% in 2016. Moreover, nearly 7% of the same companies disclosed engagement with proxy advisory firms, which advise institutional shareholders on proxy voting decisions. Meanwhile, activist investor campaigns increased 61% from 2010 to 2015 and assets under management (AUM) at activist funds grew nearly $150 billion over the same period. In the wake of Dodd-Frank, Say on Pay and corporate governance scrutiny, there remains little doubt that public boards currently operate in an investor-centric environment.
Shareholder engagement and activist activity were just two of the subjects recently examined at the recent Equilar Board Leadership Forum in Dallas, co-hosted by Nasdaq. Corporate M&A best practices, risk strategy and director pay were also reviewed in the context of shareholder sentiment and achieving both short- and long-term business objectives. The event brought board members, executives and investors together to discuss the dynamics between public company boards of directors and company stakeholders in an evolving governance landscape.
The environment for corporate M&A remains robust, even as the IPO market lags previous years. Noted one board member speaking at the event, “The synergies that are won or lost in M&A occur in the first 90 days, so processes and discipline must be instilled even before deal approval.” Governance advisors also emphasized the importance of aligning incentive compensation agreements with executives and post-deal retention goals.
Growing concerns over cybersecurity enter the fray of M&A as well. “Migrating data can be an enormous integration issue, and cybersecurity is becoming a growing concern and risk,” said one board member. On the subject of cybersecurity and other risks, directors noted that “curiosity is key,” and urged their colleagues to “do your research on markets, supply chain, compensation and cybersecurity to bring in the best external advisors in those key areas.” Boards should be prepared for contingencies, noted panelists, advising them to consider the individual director’s responsibility for specialized areas of risk should threats emerge.
Institutional investors have made plain their concerns over the present state of board composition, pushing for more scrutiny of board diversity. Both State Street Global Advisors and BlackRock (both with trillions in AUM) addressed board diversity in March, ahead of annual meetings in each firm’s portfolio.
At the Equilar event, a few investors lamented the culture of lifetime membership on some boards. “The perception that a director has a job for life needs to change,” one investor noted. “People say they support diversity, but there’s resistance when it comes to implementation,” said another. More and more, investors want to know whether the board is up to speed on company strategy and competitive markets, and just as importantly, if directors can articulate that strategy during shareholder engagement meetings. Aligning boards and shareholders is certainly a two-way street.
Matthew Goforth is a research manager at Equilar. He can be reached at mgoforth@equilar.com.
Michael Brittian
Partner, Meridian Compensation Partners
Catherine Bromilow
Partner, PwC’s Governance Insights Center
David Chun
Chief Executive Officer, Equilar, Inc.
TK Kerstetter
Host, Inside America’s Boardrooms
Jan Koors
Managing Director, Pearl Meyer
Paula Loop
Leader, PwC’s Governance Insights Center
Amjed Saffarini
Chief Executive Officer, CyberVista
Ron Schneider
Director, Governance Services, Donnelley Financial Solutions
Jan Sharry
Partner, Haynes and Boone LLP
Dennis McCuistion
Executive Director, Institute for Excellence in Corporate Governance, University of Texas at Dallas
Jennifer Wisinski