Directors are now looking to shareholders for feedback.
Shareholder engagement remains a hot-button issue this proxy season, with companies feeling the need to foster an ongoing dialogue with their shareholders on a range of corporate governance and social responsibility issues.
Directors are now under even more pressure to provide investors with a higher level of accountability and financial transparency in the wake of major corporate scandals that erupted over the past year.
According to an Ernst & Young (EY) report, Proxy season 2012: board priorities for shareholder engagement, 25 percent of companies are disclosing shareholder engagement efforts that relate to say-on-pay votes. ‘Companies made targeted pay reforms based on shareholder feedback, and followed up by communicating those pay changes and engagement efforts in the proxy statement,’ the study reports.
‘Many of the increases in disclosure requirements (from compensation reporting several years ago to last year’s say on pay) have been driving toward greater accountability,’ says Brad Robinson, managing director of Eagle Rock Proxy Advisors. ‘While it is still vanishingly rare to see a director get less than majority support at an annual meeting, these things are relative and the slow increase in board accountability to shareholders over the past 10 years is still surprising.’
The study, which took an early glimpse of filings for the 2012 proxy season, mentions that executive summaries and board letters to shareholders are an effective communications tool for helping to convey the company’s story and governance practices to shareholders.
‘In an environment where some companies have concerns over the influence of proxy advisors such as ISS or Glass Lewis, the current framework of disclosure provides a very real and potentially effective means to address these issues with both the shareholders and the proxy advisors,’ adds Robinson.
Moreover, new developments can be seen in enhanced disclosures around board composition, which highlights how different director qualifications and expertise are aligned to a company’s strategic goals, the EY report confirms.
‘Proxy statements are evolving,’ says Allie Rutherford, associate director of the Corporate Governance Group at EY. ‘Boards are sharpening their message and highlighting efforts to be responsive to shareholders, an area in which they increasingly are being evaluated [and] the ongoing challenge is establishing a balance between being responsive to investors and ensuring governance practices are appropriate for the company’s specific circumstances.’
