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EY Center for Board Matters' "2023 Proxy Season Preview" (online here)—reflecting the firm's conversations with 60 institutional investors*—summarizes investor views on the most significant portfolio company strategic threats, universal proxy, board effectiveness, and engagement priorities.

Success threats and drivers—Investors identified people issues, geopolitical turmoil, and climate risk and natural resource constraints as the three most significant threats to their portfolio companies’ strategic success. Notably, while the percentage of investors ranking people issues as a top three priority was generally on par with last year’s report (46% and 47%, respectively), geopolitical turmoil rose from 10% last year to 42% this year, and climate risk dropped from 58% last year to 37% this year.  

Down from 69% last year, 60% of investors identified the integration of material ESG opportunities into strategy as the top driver of strategic success. Over half of respondents identified the quality of and ability to execute strategy, and 47% selected the quality of board and overall governance, among the top three drivers.

Universal proxy—Generally, investors say they plan to stay the course in how they evaluate directors regardless of universal proxy. Support for dissident or management nominees may increase or decrease in some cases simply based on the fact that investors don’t need to vote a slate and can make more nuanced voting decisions. More than half (52%) of investors said ESG oversight will be a more important factor in how they evaluate and vote on directors this proxy season, compared to 73% in last year’s report.

Board effectiveness—Investors offered sound suggestions as to how companies can enhance and communicate enhanced board effectiveness. Among the tips: rigorous self-evaluations and associated disclosure; the use of substantive board matrices; refreshed and tailored director qualification disclosure; and robust board and committee oversight disclosure. Notably, the report reiterates investors’ preferences for overall board competency rather than issue-expert directors.

EY notes: “While investor views regarding putting cybersecurity or climate “experts” on boards varied, some key themes consistently emerged from these conversations. Many investors do not want single‑issue directors on boards, which they fear could lead to overreliance on that expert director and the rest of the board shedding accountability for related oversight.”

Engagement priorities—The top three engagement priorities for 2023 cited by investors were climate change risk and transition, workforce and board diversity, and strategic workforce issues beyond diversity.

Each of these focal areas is accompanied in the report by further topical detail, elaboration on the polling data, and instructive key takeaways for the board. The report also captures key themes expressed by the investor respondents in a series of "Questions for the board to consider."

*46% asset managers | 25% public funds | 12% socially responsible investment managers | 9% labor funds | 3% faith-based investors | 5% investor consultants and associations