2016 Proxy Season Preview: A Focus on the Long Term

by Kathleen McGuire | May 24, 2016

Heading into the 2016 proxy season, investors are focused on supporting long-term, sustainable corporate strategies amid concerns about short termism in the market.

As hedge fund activism continues and stock buybacks come under increased scrutiny, many investors are questioning whether boards are sufficiently focused on the long term. At the same time, some investors are increasingly integrating company strategy into their perspectives on governance. Corporate environmental and social practices are also coming into the spotlight, and the push for proxy access and board diversity continues.

The EY Center for Board Matters talked to more than 50 institutional investors, investor associations and advisors about their corporate governance views and priorities for the 2016 proxy season. Participants included asset managers (with more than US$17 trillion in assets under management), labor and public funds, and faith-based and socially responsible investors.

This report brings together this broad-based input and draws on our tracking of governance trends through our proprietary corporate governance database. So what have we learned?

  • Most investors remain focused on whether the right mix of directors, with a depth of diverse skills and backgrounds, are in place to oversee long-term strategies and risk management.
  • For an increasing number of investors, how a company manages—and how the board oversees—the company’s environmental and social impacts is integral to whether the company is being run well for the long term.
  • Particularly given the surge in stock buybacks and continued hedge fund activism, many investors are focusing on whether companies are investing capital and operating for the long term.
  • Many investors are closely watching how companies implement proxy access; companies restricting shareholders’ ability to use proxy access may damage relationships with investors.
  • Companies should strive to make engagement focused and tailored to the investors with whom they are engaging.

Four Areas Boards Should Focus On

We asked investors what topics they would like to see boards focus on in 2016. Among the top answers cited were:

  • Board composition
  • Oversight of environmental and social risk and value drivers
  • Long-term strategy amid activist hedge fund activities and stock buybacks
  • Proxy access

Making Engagement Focused and Investor-Specific in 2016

Preview snapshot: 2016 shareholder proposal landscape so far

So far we are tracking more than 600 shareholder proposals submitted for 2016 annual meetings, which is around the same level as this time last year. Around 10% of the proposals have already been withdrawn—in most cases because companies have agreed to implement the proposal in part or full, provide additional disclosure or commit to ongoing dialogue on the topic.

Environmental and social category continues to lead

Proxy access is the most commonly submitted shareholder proposal so far this year. However, when considered by category, environmental and social topics represent the largest proposal category by the overall number of proposals submitted. This year, a growing number of these proposals address climate change. For example, some proposals at energy companies focus on the risk of stranded assets while proposals at utility companies focus on the challenges and opportunities related to distributed generation.

Top three 2016 shareholder proposal categories to date (based on proposal submissions)

Image showing the top three 2016 shareholder proposal categories

Questions for Boards to Consider

  • Is the board prepared to incorporate strategy in engagement conversations with investors on governance matters?
  • Are there opportunities to enhance the company’s communications around board composition and director succession planning and assessment processes?
  • Does the company integrate environmental and social impacts into its strategic thinking—and how is the board communicating that to investors?
  • Can shareholder engagement be more focused, productive and investor-specific?

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