Board diversity was the number one issue emphasized by investors for 2019, according to a recent EY Center for Board Matters report. The annual study, which presented input from more than 60 institutional investors representing over $32 trillion in assets under management, focused on the top three areas of importance to investors as well as engagement, strategy, risk oversight and shareholder proposals. Key findings for this year included:
- Top Three Issues. For 2019 these were board diversity (53% of investors, up from a third three years ago), company-relevant environmental and social issues (49%), and human capital management (39%). Increasing numbers of investors emphasized both board and executive diversity as well as disclosure of demographics. On ESG, more than a third (38%) of investors who consider it a top three priority are specifically focused on climate change, up from 15% three years ago. Finally, interest in human capital metrics has catapulted from just 6% three years ago and is focused on culture shifts and the importance of talent, especially in talent-scarce industries such as technology and financial services.
- Long-Term Strategy. When asked whether companies are doing a good job of balancing short- and long-term investments, nearly 20% responded that current disclosure is insufficient for them to answer the question. Noting a strong emphasis on short-term results in most company proxies, investors complained that long-term strategy is typically only discussed in response to external pressure such as a proxy contest or shareholder activist. A "clear picture of how short-term goals and executive pay tie into and support long-term strategy" is key.
- Tips for Engagement. Although close to a third (30%) of investors said overall engagement has improved significantly, especially with increased director involvement and a more respectful approach, there were suggestions for further improvement:
- Avoid engaging in the spring if possible (typically the busy season), with no clear agenda, or with the sole purpose of debating proxy advisory firm views, especially if the investor does not rely on that proxy advisor for voting guidance.
- Send an agenda in advance, have relevant decision-makers and subject matter experts involved, and avoid leaving all engagement to Investor Relations without involvement of those who are expert in the topics discussed.
- Be investor-specific: read proxy voting guidelines, do at least a minimum of research on the investor and your company's past conversations with them, and understand the basics of the investor's investment strategy.
- Raise challenges or controversies directly without obfuscating.