Perhaps not surprisingly, board composition - with a particular focus on enhanced board diversity (in its broadest sense, but with gender most commonly cited), was once again the top priority expressed by the more than 60 institutional investors ($32 trillion in AUM), investor associations and advisors interviewed by the EY Center for Board Matters in connection with its "2018 Proxy Season Preview." The report - based on the firm's conversations with global and US-based asset managers, public funds, labor pension funds, faith-based and socially responsible investors, and others - captures investors' corporate governance views and priorities for the 2018 proxy season.
These additional priorities round out the top five - each of which is accompanied in the report by further topical detail, relevant data, reader-friendly graphics, and instructive key takeaways for the board:
- Board-level expertise (either via board representation or access to management and 3rd-party expertise) that is more aligned with business goals. Technology (cybersecurity & data privacy in particular), industry, climate competency, risk oversight, and strategy were most commonly cited as areas of opportunity for enhanced expertise.
- Increased attention to climate risk and the environment. Almost half of investors identified enhanced reporting as a priority, albeit with the welcome caveat that same must be company circumstances-specific, which could consist merely of disclosing that climate is not material to the business (if true).
- Enhanced management attention to - and board oversight of - talent and human capital management, including attracting, retaining, training, and engaging the entire workforce, and the inter-relatedness to corporate culture
- Compensation that is more aligned with performance and strategy. Notwithstanding high SoP support, these investors reportedly expressed concern about the rigor of performance incentive structures and pay magnitude.
Notably as to board composition, about half of investors said that they consider board diversity in their director election voting practices; approximately one-quarter said they do so on an event-driven basis (e.g., in response to shareholder proposals on board diversity); and about one-fifth said that they were considering changes to their own diversity policies to clarify or expand diversity definitions or to hold companies to a stricter standard. Approximately one-quarter called for more board composition-related disclosure.
Additional, related investor focal points include board assessment, refreshment and succession planning processes.