The institutional investor survey results revealed in this recently-released Annual Investor Corporate Governance Report from CMi2i are consistent with the trend toward increasing expectations of board accountability and engagement by, and collaboration and assertiveness among, institutional investors vis a vis their portfolio companies. The respondents - which collectively represent over $8 trillion of assets under management – consisted of those responsible for corporate governance, responsible investment, and proxy voting for over 1,200 funds in Europe and the US.
Key engagement-related takeaways include:
- 59% of investors expect their level of engagement with portfolio companies to increase, compared to 69% in 2017 – the modest decline year-over-year reportedly attributable to the increase in the baseline activity in recent years. None expect the level of engagement to decrease.
- All investors have either led or supported collaborative engagement, and 50% of investors anticipate that collaboration will increase in the future. The report notes that this sort of collaboration among investors has been promoted by initiatives and communication channels such as the UK Investor Forum, PRI, ICGN, and Investor’s Group on Climate Change.
- Respondents overwhelmingly prefer to talk with the board chair about governance issues (94%), followed by the senior/lead director (76%), and then the committee chairs (71%). Management ranks much lower in this regard, although the Corporate Secretary/GC ranks much higher (53%) than the alternatives, with IR and “senior executives” tied for least preferable at 24%.
- 88% of investors believe it is somewhat or very important for companies to know where there are misalignments between their ESG practices and the investors' policies or principles to be better prepared for engagement.
And companies that fail to respond to investor engagement efforts can expect investors to escalate their engagement by employing these five escalation strategies (five most common):
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Escalation Engagement Approaches
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% of respondents
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Expressing concerns by voting against or abstain directors
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100%
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Collaborating with other investors to press for change
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100%
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Requesting additional meetings with board members
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94%
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Making portfolio decisions (divesting)
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71%
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Requisitioning meetings or supporting others who are doing so
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59%
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Notably, filing shareholder proposals ranked 7th on the list at 29%. The report notes that only 12% of investors notify companies of their intent to vote against - and just 53% disclose their rationale for voting against - management’s proposals, suggesting that investors should increase transparency about the bases for their “no” votes to help bridge the gaps between investor and company perspectives and expectations.