Governance during 'shareholder spring'

Inside the mind of a shareholder.

Tweet

Frustration is growing among shareholders as they continue to demand greater transparency on stratospheric CEO pay packages. This proxy season, it seems, shareholders have had enough; as a result, they are pushing back loudly on a variety of corporate governance matters that affect executive compensation. The backlash is being felt at annual general meetings across the nation and overseas, with shareholders carefully scrutinizing corporate governance and pay practices.
 
Many experts thought Dodd Frank would provide the answers to most of the governance problems companies face, and its provisions certainly touch on virtually every corner of the financial markets. But some Wall Street firms are struggling to stay in compliance with this legislation and this is something shareholders are factoring into their investment decisions. To be specific, one might wonder: what exactly do shareholders want? A recent survey by FTI Consulting, a global business advisory firm, sought to answer this question and the results were as follows:
 
(i) Executive compensation practices remain a major concern and rank high on shareholders’ agendas.
 
(ii) The annual say-on-pay vote on compensation is becoming increasingly important.
 
(iii) Investors are calling for greater board independence, quality oversight and effective governance measures that can help protect shareholder interests.
 
(iv) Shareholders are looking for companies to engage in annual corporate governance roadshows as a form of enhanced communications.
 
The report reveals that investors are now using their voting power to voice their concerns over dissatisfaction with performance. An astounding 72 percent of the 170 institutional investors polled feel anything more than 30 percent of shareholders voting against executive compensation is solid proof a corporate response is needed.
 
Meanwhile written communication is seen as a thing of the past. Ninety-two percent of shareholders are calling for more engagement with the board of directors through governance roadshows with more than 58 percent expecting these to be held once a year.
 
In short, shareholders want – and deserve – corporate governance transparency, enhanced executive compensation disclosures and better engagement.