According to Morrow Sodali's always eagerly awaited annual Institutional Investor Survey, institutional investors are seeking more, more, more from their portfolio companies - more director engagement & accountability, more information, and more evidence via company practices and disclosures of a long-term orientation.
Key takeaways include:
- Investors prioritize directors' skills & qualifications and professional experience significantly ahead of their gender, ethnic, or age diversity.
- Asked to rank the importance of various factors in their voting decisions, investors overwhelmingly ranked the company's governance policies and practices as the highest priority. The company's long-term business strategy and the quality and completeness of the company’s communications were ranked a relatively distant 2nd and 3rd, respectively.
- 87% of respondents indicated that proactive and regular engagement with the board helps them evaluate a company’s culture, purpose and reputational risk; 72 % selected “proactive and regular engagement with management.”
- Investors top two goals when engaging with companies and their directors are understanding the company’s business strategy and capital allocation, and understanding how the board oversees corporate culture and tone at the top.
- Investors ranked human capital management (HCM) and climate change as top priorities for more detailed disclosure for their evaluation of those topics, but overwhelmingly ranked climate change as the sustainability topic they will focus on most when engaging with companies in 2019 - much more so than corporate culture, HCM and other sustainability topics.
- A significant minority (46%) of investors said the inclusion of sustainability performance metrics & targets in executives' long-term incentive plans is "very important," while 43% said it is "somewhat important." 32% said these metrics & targets are very important in the executives' annual incentive plans.
- Asked what factors in addition to poor financial performance will lead them to support activist initiatives, institutional investors ranked an activist-credible story focused on long-term strategy as #1, followed by an unclear business strategy, misallocation of capital, and absence of board accountability.
See additional key takeaways in Morrow Sodali's release.
The annual survey captured responses from a diverse mix of 46 global institutional investors representing $33 trillion in AUM (59% active/41% passive).