|[April 10, 2014]
Engagement between Corporations and Investors at All Time High, Creating High Satisfaction Levels from All Sides
NEW YORK --(Business Wire)--
A new study finds that the level of engagement between investors and
publicly traded U.S. corporations is at an all-time high. Both investors
and corporate officials surveyed believe the increased level of
engagement is successful.
The study finds that the new requirement that U.S. companies seek
shareholder approval on management compensation ("say on pay" voting) is
the largest reason for the increase. "Say on pay" was credited by nearly
one-half of both investors and companies as a cause for the increase in
engagement. However, this issue is only part of a broader shift in
dialogue. Engagement trends continue to deepen - there are conversations
on more issues, discussions are more frequent, corporate directors are
more involved, and companies are realizing the upsides of proactive
The study, Defining
Engagement: An Update on the Evolving Relationship Between Shareholders,
Directors and Executives, updates the first-ever
benchmarking of engagement completed three years ago. The new report,
authored by Institutional Shareholder Services Inc. (ISS) and
commissioned by the Investor Responsibility Research Center Institute
(IRRCi), surveyed 82 institutional investors with aggregate assets under
management of more than $17 trillion, and 133 US-listed companies with
an aggregate market capitalization of more than $2.3 trillion. The
survey, undertaken during the fall of 2013, was supplemented with 45
Some of the report's key findings are as follows:
Engagement is more firmly rooted in the corporate governance
landscape. Only about one-fifth of both companies (22 percent) and
investors (19 percent) had not initiated any engagement in the past
year. That number is down from more than one-fourth of companies (27
percent) and nearly one-half of investors (44 percent) three years ago.
The number of engagements is up. Among companies, 47 percent
reported initiating more than ten engagements with investors, up from
30 percent three years ago. Among investors, 55 percent reported more
than 10 engagements, up from 31 percent in the earlier study.
The degree of success is high. Companies reported their
engagements were "usually" successful 72 percent of the time and
"always" successful 11 percent of the time, compared with 44 percent
of investors who said they were "usually" successful and 6 percent who
said "always." The remainder of respondents for both companies and
investors said they were "sometimes" successful; no companies or
investors reported that they were never successful. The results are
largely consistent with the previous study, which also found success
levels higher among companies.
Corporate directors are more likely to take part in engagements
today than three years ago, though such participation is still the
exception. Investors said, on average, 22 percet of their
engagements involved communication with directors, though the median
was only 10 percent, suggesting that a few investors may engage with
many directors. Companies reported an average of 10 percent of their
engagements, and a median of 5 percent, involved directors.
The subject matter of engagement is varied. Both investors and
companies reported frequent subject areas were executive compensation
and other governance issues. Other frequent topics for investors were:
social issues, environmental issues and transactions (such as mergers
or acquisitions) and corporate strategy. Corporations reported
frequent engagement on financial results, transactions and corporate
Both investors and companies, but particularly companies, seem to
be getting more comfortable with engaging. Both investors and
companies are devoting more resources to their engagement efforts.
"This is the rare instance where a regulatory reform is working as
intended. No matter your views on say on pay, it has forced increased
communication between public companies and shareowners - and that's a
positive outcome," said Jon Lukomnik, IRRCi executive director.
"Moreover, the conversations have expanded beyond one narrow issue.
Issuers and investors now are engaging more frequently on merger and
acquisition activity, environmental and social issues, board structure,
director qualifications, corporate strategy and financial results."
"Although engagement levels at an individual company will continue to
fluctuate from year to year based on varied factors, evidence suggests
that the upward trend will continue," said Marc Goldstein, study author
and head of engagement at ISS. "Dialogue will continue to play
prominently as investors seek to mitigate risks at companies they intend
to hold for the long-term, while, concurrently, issuers seek to win
support for company proposals, ward off activists, and keep shareholders
happily invested in the stock."
Other findings from the report include:
A majority of survey participants reported that the number of
engagements in which they had participated during the previous year
has increased. Among investors, 49 percent reported that the
number of engagements had increased somewhat, while 18 percent said
the number of engagements had increased significantly. The remaining
one-third of investors said the number of engagements had not changed,
while not a single investor reported a decrease. Nearly one-half of
issuers also said that the number of engagements had increased
"somewhat," while 10 percent said it had increased "significantly."
Only 2 percent of issuers reported that engagement had decreased
somewhat, but no issuers reported a significant decrease.
Half of investor respondents reported that the three-year trend was
for engagement to expand to cover more topics. Among issuers, 38
percent reported an expansion. Investors noted that they are
engaging more on sustainability, environmental and social issues, as
well as risk factors including director and management succession and
industry-specific risks. Issuers noted engaging more on governance and
compensation, environmental and social issues, as well as
company-specific factors such as changes to the senior leadership team.
With respect to defining success, dialogue is the hallmark of a
successful engagement for issuers. Some 93 percent of issuer
respondents said that a constructive dialogue on specific issues of
concern was sufficient to make an engagement successful; while 69
percent of issuers said that the establishment of a dialogue, even if
contentious, was sufficient to constitute success. Investors were
notably less likely than issuers to equate dialogue with success,
although nearly two-thirds of investor respondents did say that a
constructive dialogue on issues of concern would make an engagement
successful. A slightly higher percentage of investors said that a
commitment to engage in the future would constitute success, and 73
percent answered that additional disclosure or a change in company
policies or practices would suffice to make an engagement successful.
"Clearly, engagement is not going away. Engagement is here to stay and
will continue to grow. So, it seems to be in the best interest of
shareowners and issuers to find ways to manage this increased engagement
efficiently and productively," Lukomnik said.
Download the full study here.
NOTE: A webinar is scheduled for Thursday, April 17, 2014, at 2 PM to
review the findings. Register here.
The IRRC Institute is a not-for-profit organization headquartered
in New York, NY that provides thought leadership at the intersection of
corporate responsibility and the informational needs of investors. More
information is available at www.irrcinstitute.org.
Institutional Shareholder Services Inc. (ISS), founded in 1985,
is the world's leading provider of proxy advisory and corporate
governance solutions to financial market participants. ISS' services
include objective proxy research and analysis, end-to-end proxy voting
and distribution solutions, turnkey securities class-action claims
management, and reliable governance data and modeling tools. Clients
rely on ISS' expertise to help them make informed corporate governance
decisions. For more information, please visit www.issgovernance.com.
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