Spencer Stuart's summary of its recent interviews with BlackRock VP Investment Stewardship Group Peter da Silva Vint and NYC Pension Funds Assistant Comptroller Michael Garland revealed a number of noteworthy takeaways for boards concerning their expectations and approaches.
The following excerpts are particularly share-worthy:
Q: Is the board’s composition a leading or lagging indicator of company strategy?
Narrowly focused “specialist” directors are viewed by both investors with a skeptical eye. Noting that board seats are limited, they cautioned that no director should check only one box on a board’s skills matrix. Their view: each director should add a variety of skills to the boardroom, although some directors may have a narrower set of expertise depending on the company and its unique considerations.
Q: Are assessments the foundation of the board’s refreshment strategies or are tools such as mandatory retirement ages the default mechanism for refreshment?
Mandatory retirement ages and tenure limitations are opposed by both investors. Such policies can serve as “crutches” enabling boards to avoid the difficult conversations when a director’s skills may no longer be relevant or if a director is underperforming, Garland said.
Q: Do company disclosures provide a robust and accurate picture of individual director qualifications and connect with company strategy and risks?
Da Silva Vint said BlackRock is open to different forms of director skill disclosures, but he noted that matrices would make it easier to assess the directors and boards of the 4,000-plus companies in BlackRock’s portfolios.
Q: Do the board’s composition and refreshment actions reflect an ongoing commitment to gender and racial diversity in the boardroom?
BlackRock and the New York City pension funds consider board diversity a fundamental dimension of board quality, and they are taking different approaches to underscore their commitment to the issue… BlackRock will use proxy votes to urge reform…Meanwhile the New York City pension funds are pressing on the disclosure front.
Q: Do company disclosures and communication/engagement strategies focus on strategy and value creation, providing a strong first line of defense against activists?
Da Silva Vint said BlackRock wants directors to be involved on calls or in meetings. It tends to engage with companies at least once a year — generally once during the proxy season to discuss voting matters and sometimes if necessary, again in the off-season to discuss long-term term or non-voting issues. While BlackRock responds to every request for dialogue, he noted that it only engages with companies where there are issues or BlackRock owns a sizable position.
In contrast, the New York City funds focuses engagement on companies it selects for advocacy, usually via shareholder proposals that are filed as a tool to promote engagement with companies and directors, according to Garland. He said the funds want the opportunity to engage with directors at certain times, such as activist situations or when there are issues with executive compensation.
See our recent reports: "BlackRock Walks its Talk on Portfolio Board Diversity" and "BlackRock's Updated Proxy Voting Guidelines: More Color & Context," and additional resources, including proxy voting guidelines and engagement and voting reports, on our Institutional Investors topical page.