Investors have a limited line of sight into most boardrooms, and the proxy statement is typically an investor’s primary window into board decisions and strategy. To better understand how institutional investors use proxy disclosures, this past year RR Donnelley collaborated with Equilar and Stanford University’s Rock Center for Corporate Governance on a survey of investor use of proxies.
The results, which included responses from 64 institutional investors with a combined $17 trillion in assets under management, revealed that investors are attuned to what they can decipher with respect to board oversight of risk. In particular, they are highly likely to seek out information about how boards analyze risk when it comes to voting and investing decisions. Disclosure of risk oversight was ranked eighth out of 20 topics investors indicated they review carefully in proxies, with 43% of respondents indicating this was an important topic in making voting decisions. Furthermore, disclosure of risk oversight ranked even higher at fourth out of 20 proxy disclosure topics, with 29% of respondents indicating this was an important topic in making investing decisions.
With this in mind, further analysis of how boards disclose this information provides examples of how companies engage their shareholders regarding risk and how they can increase transparency on this important issue.
We typically see the topic of board oversight of risk covered in one of three ways:
As we assist a range of clients that are evolving their proxies each year, companies seem to be getting the message from their investors about the importance of this topic. This understanding is reflected in how an increasing number of companies communicate their risk oversight stories effectively to a range of investors and other constituencies.
To get a better understanding of just what cutting-edge disclosure might look like, please consider these examples from 2016 proxy statements. Due to space limitations in this article, we are sharing the visual aspects of these companies’ disclosures. For a full view of their disclosures, consult their proxies to see the context of these images, including accompanying narrative discussion.
These disclosures effectively convey the message that these companies truly take board oversight of risk seriously, and such an approach may generate greater investor confidence and support—whether in voting, investing or both—in these companies versus peers/competitors that do not provide similar clarity around their risk oversight processes.
Now is a prime opportunity to rethink your proxy disclosures, looking at what your peers and some best-in-class companies are doing.
Ron Schneider is the Director of Corporate Governance Services for Donnelley Financial Solutions. He can be reached at ronald.m.schneider@dfsco.com.