Forecasting 2016 Shareholder Demands & Expectations - NACD BoardVision
Leading directors should place the demands and expectations of shareholders top of mind as the proxy season approaches. Chuck Callan, SVP of Regulatory Affairs at Broadridge Financial Solutions, and Greg Lau, managing director of RSR Partners, discuss say on pay, retail investor engagement, and what to anticipate from evolving regulatory and activist investor landscapes in 2016.
Chris Clark: If you're a leading director, having a true understanding of shareholder needs and expectations, is paramount. The question is, are you a leading director? I'm Chris Clark and this is BoardVision. I'm joined today by Chuck Callan of Broadridge Financial, and Greg Lau of RSR Partners. Welcome!
Chuck Callan: Welcome.
Greg Lau: Good to be here.
Chris Clark: Say on pay voting has not changed too much over the last couple of years. So when we look out a little bit, what do you think, in terms of 2016, what would be the two or three hot issues? Will it be the pay ratio, will it be the clawbacks? Chuck, what do you think?
Chuck Callan: Well, I think actually [inaudible] voting has changed over the last few years, and what we've seen is companies now have fully five years of experience with say on pay under the Dodd-Frank rules. A year ago, in the 2014 season, we saw that about 345 companies who had put out their pay plans failed to surpass the 70 percent support threshold, and that's important. I think people, very commonly, look at corporate shareholder meetings and they -- they may equate them with political elections, where if you get 50 -- more than 50 percent, you're done, but really with corporations and directors, as Greg knows, you're looking for as much support of the shareholders as possible, so the 70 percent is an important threshold. In contrast, of those 345 in '14 that didn't surpass the threshold, we saw about 245 in '15. That is a reflection of the fact that companies have had more experience, they are engaging more with their shareholders, and they're really getting it in terms of the design of their compensation.
Chris Clark: Greg, do you get that sense of improvement as well?
Greg Lau: I think most companies know what the red flags are from the proxy advisor firms. They are explaining their programs in detail, and they're also meeting with their institutional investors on them. So I think the whole community is coming together, and on balance sides [phonetic], I think say on pay has been a good thing.
Chris Clark: Let's get to something that kind of perplexes me, and, again, this is getting back to truly understanding your shareholder. Retail voting has taken kind of a precipitous drop, and I have no idea why.
Chuck Callan: There's some practical reasons for that and some practical ways to address it. One of the reasons for that decline I think is because the proxy statement itself has become longer, more complex, more turgid, perhaps, in certain instances, and -- and I think retail shareholders, we're seeing that they respond well to concise information. They want to hear from companies, but they don't necessarily understand, who are these directors?
Chris Clark: Because it's not concise, is it disinterest?
Chuck Callan: If I don't understand something, I'm going to -- I'll back away. I don't want to -- I don't want to break something. So I'll let others, the greater good, who may know more than me, express and -- rather than get engaged. So I think there is -- there is an issue there.
Chris Clark: Greg, you were on the board of NACD, you work with boards all the time. Is the retail investors, the retail voting top of mind?
Greg Lau: No, I don't think so, and it should be. All companies ought to [inaudible] their retail investors and try to get that 28 percent or so voting up. Some companies have been very innovative in improving their retail, and I think everybody ought to look at it.
Chris Clark: Chuck, is there a how?
Chuck Callan: That's where technology comes in. Just as a practical matter in terms of the cost of communicating with shareholders has come down over the years because of the introduction of more technology, and I think there are many more opportunities now. Three times a year, Broadridge publishes statistics in the aggregate on some of the matters that Greg has mentioned here, where proxy accesses is really very, very current in terms of topics that are important to investors and to company directors, and I think more companies will see those proposals on the ballot in future years.
Greg Lau: I agree.
Chris Clark: What other issues should be at the top of a director's agenda for next year?
Chuck Callan: For companies and shareholders, the matter of engagement is catching on. We're certainly seeing more engagement between companies and their shareholders, and I think that is leading to more alignment in certain areas. They'll continue to be activism. There's the regulatory landscape continues to evolve, and I think it's keeping everybody on their toes.
Greg Lau: I would think on issues for the board, I mean, we always look at strategy and risk and now cyber security. I think they need to do a deeper dive sometimes and look at the talent, both in the C suite all the way down. I think they had to look more at culture disruptors, whether it's in your competitors, whether it's in the technology base. They -- it's hard to look around the corners, and they are spending more time looking around the corners.
Chris Clark: Talent is paramount. If you don't have the right talent management on the board, you're not going to...
Greg Lau: And that talent's got to attract your strategy. So where your strategy is going and boards used to have three, five years plans, and now something happens, you know, every -- it seems like every month, every six months, to alter the edges of that strategy, and they -- so they've got to understand their talent.
Chris Clark: Is there a priority issue in 2016 that directors should elevate?
Chuck Callan: I do think that proxy access continues to be a very important one. We now have in place something that allows companies and their shareholders to determine. What is right for them? What's the right mechanism? Is it the 3 percent owner or group of owners, continuously, for 3 years, or is it -- or is it something else? Do they get 25 percent nominations for 25 percent of the seats? I think that will continue to expand and continue to be an important issue. And I highlight that one, Chris, because I think it does speak to this issue of talent and skills and board dynamics. And they'll be a lot of boards who'll maybe look at that and say it's an opportunity and others will look at it and say it's a threat, you know, we've kind of gotten the chemistry right, we've got the right skills inventory represented around the table, and, but that'll certainly -- that'll be certainly with us.
Chris Clark: I think that's a perfect way to end, and, Chuck, I want to thank you for your expertise; Greg, I want to thank you for providing the board lens. If you'd like to learn more, please visit the NACD site, read the Blue Ribbon Commission Report, go to the Broadridge financial site, or the RSR site. Thank you again. I'm Chris Clark, and this is BoardVision.
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