Shareholder Engagement on the Rise; Trend Expected to Continue, Survey Finds

By Che Odom  

April 17 -- The level of engagement between public U.S. corporations and their shareholders is up, creating high satisfaction levels from both sides, according to a study released April 10.

“The overall trend is toward more engagement,” Marc Goldstein, head of engagement for Institutional Shareholder Services Inc. and study author, said during an April 17 web conference with reporters. “The biggest impediment to engagement is the time it takes. This is true of shareholders and issuers.”

The study updates a 2011 report and is based on a survey of 82 institutional investors and 133 U.S.-listed companies with an aggregate market capitalization of more than $2.3 trillion. The survey was supplemented with 45 in-depth interviews.

Say-on-Pay a Factor

The study finds that the new requirement that U.S. companies seek shareholder approval on management compensation is the largest reason for the increased engagement . Say-on-pay votes were credited by almost half of those interviewed as a cause for the increase.

“This is the rare instance where a regulator reform is working as intended,” Jon Lukomnik, executive director of the Investor Responsibility Research Center Institute (IRRCi), said during the web conference. “Moreover, the conversations have expanded beyond one narrow issue.”

According to the survey, which IRRCi commissioned, public companies and shareholders are now “engaging more frequently on merger and acquisition activity, environmental and social issues, board structure, director qualifications, corporate strategy and financial results,” Lukomnik said.

Among the study's key findings:

• Engagement is more firmly rooted in the corporate governance landscape.

• The subject matter of engagement is varied.

• Corporate directors are more likely to take part in engagements today than three years ago, though such participation is still the exception.

 

Topics Varied

About 22 percent of companies and 19 percent of shareholders had not initiated any engagement in the past year. That number is down from about 27 percent of companies and 44 percent of shareholders three years ago, according to the study.

Among companies, 47 percent reported initiating more than 10 engagements with shareholders, up from 30 percent three years ago. Among investors, 55 percent reported more than 10 engagements, up from 31 percent in the 2011 study.

Shareholders and issuers reported discussing a variety of subjects when engagement occurs, including executive compensation, merger and acquisitions, environmental impact, social issues and corporate strategy, Goldstein said.

Both groups, but particularly companies, seem more comfortable with engagement and are devoting more resources to those efforts, he added.

“Although engagement levels at an individual company will continue to fluctuate from year to year based on varied factors, evidence suggests that the upward trend will continue,” Goldstein said. “Dialogue will continue to play prominently as investors seek to mitigate risks at companies they intend to hold for the long-term, while, concurrently, issuers seek to win support for company proposals, ward off activists, and keep shareholders happily invested in the stock.”

 

To contact the reporter on this story: Che Odom in Washington at codom@bna.com

To contact the editor responsible for this story: Kristyn Hyland at khyland@bna.com


The study is available at http://irrcinstitute.org/pdf/engagement-
between-corporations-and-investors
-at-all-time-high.pdf
.