In 2020, Companies Will Continue to Face Pressure to Diversify Their Boards, Address Pay Gaps, and Expand Political Contribution Disclosure
NEW YORK, Dec. 17, 2019 /PRNewswire/ -- In a report released today, The Conference Board finds that the environmental and social policies of corporations will continue to take center stage in the 2020 shareholder voting season. Institutional investors will continue to focus on issues pertaining to board diversity, disparities in the compensation of female employees, and transparency around corporate political activities.
Conducted in collaboration with ESG data analytics firm ESGAUGE, leadership advisory firm Russell Reynolds Associates, and the Rutgers Center for Corporate Law and Governance, Proxy Voting Analytics (2016-2019) and 2020 Season Preview provides a comprehensive analysis of the most recent trends in shareholder voting and activism across the entire Russell 3000, as well as a preview of what corporations should expect in the year ahead. Key insights include:
“While these remain small numbers overall (more than 16,000 directors were up for re-election in the Russell 3000 in the examined 2019 period), they are part of a new upward trend, and that reflects some large institutions intensifying their scrutiny of board composition,” said Matteo Tonello, Managing Director of ESG Research at The Conference Board and the author of the publication.
For example, CalPERS, the largest public pension fund in the country by volume of managed assets, recently pointed to issues of diversity and concerns about directors serving on multiple other public companies’ boards as the main factors influencing its decision to step up its vote against certain incumbents. And, in early October 2019, New York City Comptroller Stringer announced the launch of a third phase of its Boardroom Accountability Project, calling on companies to adopt the so-called “Rooney Rule” and include diversity candidates in searches for new directors.
In the 2019 period examined for this report, shareholders engaged in 124 exempt solicitations against management of Russell 3000 companies, compared to 100 solicitations of the same period in 2018 and 79 in 2016. By way of comparison, there were only 47 in the corresponding 2013 period and 18 in 2010.
Justus O’Brien, co-lead of the Russell Reynolds Board and CEO Advisory Partners Practice, noted that “the analysis points to ever-growing scrutiny over board composition, suggesting the need to periodically evaluate director skill sets and adopt refreshment strategies as needed.”
“Even though social and environmental shareholder proposals still tend to fail, the data show a slow but steady upward trend in terms of voting support,” said Matthew Goforth, Vice President, Corporate Solutions at ESGAUGE, the data provider that contributed to the study. “In the months preceding the next presidential election, companies may witness a record number of shareholder proposals and engagement efforts on the disclosure of political activities, including monetary contributions to campaigns and lobbying.” (It’s a category under which average investor support level has risen from 24.6 percent in 2017 to 33.6 percent in 2019.)
As just one sign of the issue’s rising significance, a popular gender equality index, tracking the most forthcoming companies on issues of gender diversity and pay equality, has doubled in size in 2019. Whether they choose to publicize their findings or not, companies should consider gathering accurate internal data on this issue and what steps to take in light of the findings.
“The role of and expectations for public company directors continues to increase with greater oversight on topics from ESG to pay equity to board quality,” said Rusty O’Kelley, co-lead of the Russell Reynolds Board and CEO Advisory Partners Practice. “Smaller boards are soon going to feel that heightened scrutiny from institutional investors and will need to make changes in how they operate or risk negative investor votes.”
The publication is part of The Conference Board Corporate Intelligence portfolio of benchmarking data and analysis on board practices, executive and director compensation, corporate communications and investor relations, corporate sustainability, and corporate citizenship and philanthropy. Visit www.conference-board.org/ESGintelligence
“Both the three-year trend and the 2019 snapshot suggest that the proxy ballet between corporations and investors has finally reached maturity. We see fewer but more focused proposals. Shareholders use alternative ways of communication—engagement, exempted campaigns, social media—when a formal proposal is not necessarily the most effective one,” said Matteo Gatti, Professor of Law at Rutgers Law School. “The corporate world may be a step closer to reaching consensus on once contentious corporate governance issues such as majority voting, board declassification, and elimination of supermajority requirements. Extensive focus on social and environmental matters comes from all the major players in the investment industry, and not just CSR activists. All these indicators point to a better use of the shareholder proposal device and a more sophisticated dialogue between stakeholders.”
Media can contact The Conference Board for a copy of the report.
About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what’s ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org
About ESGAUGE—ESG Intelligence and Analytics
ESGAUGE is the help desk uniquely designed for the professional service firm seeking customized data on U.S. public company disclosure of environmental, social and governance (ESG) practices. Our clients include compensation consultants, law firms, accounting firms, and investment companies. We also partner on research projects with think tanks, academic institutions, and media companies. Esgauge intelligence is tailored to specific empirical information needs, with segmentations by select peer groups, business industry, and multiple company size dimensions. Data insights are tagged and hyperlinked to underlying sources. Learn more at www.esgauge.com
About Russell Reynolds Associates
Russell Reynolds Associates is a global leadership advisory and search firm. Our 470+ consultants in 46 offices work with public, private and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today’s challenges and anticipate the digital, economic and political trends that are reshaping the global business environment. From helping boards with their structure, culture and effectiveness to identifying, assessing and defining the best leadership for organizations, our teams bring their decades of expertise to help clients address their most complex leadership issues. We exist to improve the way the world is led. www.russellreynolds.com
About the Rutgers Center for Corporate Law and Governance
The Rutgers Center for Corporate Law and Governance is a project of the Rutgers University School of Law, located in Camden and Newark, New Jersey. The Center is an interdisciplinary forum for research, analysis, and discussion of current issues in corporate law and governance. The Center serves as a resource for students, faculty, alumni, and the business and nonprofit communities. Its objectives are to identify and promote best corporate law and governance practices and law reform, and to build bridges between Rutgers Law School, the business and nonprofit communities, government officials, and other Rutgers University units. For more information, visit https://cclg.rutgers.edu/
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SOURCE The Conference Board