SpencerStuart’s guide to key voting policies for 2020 highlights that some of the largest institutional investors expect ongoing diversity improvement efforts and meaningful board performance evaluations. In the publication, SpencerStuart provides a useful guide on several key voting policies: diversity, overboarding, leadership, and tenure limits for directors.
BlackRock, Vanguard, State Street, and Proxy Advisors Featured. The guide looks at the voting policies on these issues at BlackRock, Vanguard, State Street Global Advisors (SSGA), ISS, and Glass Lewis. For the two proxy advisors, the policies discussed are the benchmark policies; investor clients may develop customized voting policies.For example, ISS specifically maintains custom voting policies for many of its clients which include several of the largest institutional investors. Those custom policies may drive voting patterns that differ from the recommendations seen on the ISS benchmark proxy report. Further, for S&P 500 companies that receive a draft report prior to publication, ISS provides the benchmark draft and does not explain how custom voting policies may be applied to different reports.
Separate Report on Board and Leadership Diversity. SpencerStuart also published a companion article on institutional investors’ increased focus on diversity at the board and executive level. The recent focus on gender diversity of boards is likely to continue. While all S&P 500 companies have at least one female director, and most (92%) have at least two, the pace of change remains slow. Over the previous 10 years, the prevalence of female directors has only increased 10%, from 16% in 2009 to 26% currently. The article predicts that gender diversity will remain an issue until representation approaches parity.
- Rooney Rule Focus? Institutional investors are also expected to increase pressure on boards for improved racial and ethnic diversity, including the use of the NFL’s Rooney Rule - requiring the consideration of at least one diverse candidate for director searches. The report states "we expect investors will press boards and companies for enhanced voluntary disclosures of a range of human capital metrics, including the diversity attributes of the workforce, with breakdowns by employee groups, such as executive officers and managers." It notes that greater workforce diversity will help build a pipeline for more diverse management teams and Boards.
- Need for Improved Board Evaluations. In addition to diversity, investors are looking for optimized board composition. To that end, boards are being encouraged to move away from mandatory retirement ages and toward a robust performance assessment at the full board and individual director level. The article expects investors to increasingly pressure boards on the quality of the evaluation process as well as enhancing the disclosure of both the process and key takeaways. Lastly, boards should anticipate that the use of periodic third party evaluations will become a best practice in the US.