Board Makeup Top Issue for Investors in Year Ahead, Survey Shows

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By Andrea Vittorio

Corporate boards’ makeup is top of mind for institutional investors this year, according to an Ernst & Young LLP survey released Jan. 30.

More than 80 percent of asset managers, public pension funds, and other investors managing a collective $32 trillion in assets told EY that making sure boards have the right mix of members, including women and experts in areas such as cybersecurity, should be a focus for directors in 2018. That’s up from about 70 percent of investors the year before.

Kellie Huennekens, associate director of EY’s Center for Board Matters, said investors are interested in board composition, especially diversity, because they’re “key aspects of board effectiveness.”

“Fundamentally, investors want to make sure their portfolios include businesses that are sustainable for the long term,” she told Bloomberg Law. “They’re seeking performance.”

Research by McKinsey & Co., the Boston Consulting Group, and others has shown that companies with more diverse management teams and boards perform better financially.

Director Diversity

Big asset managers such as State Street Corp. and BlackRock Inc. have cited that kind of research in their push for more women on boards. Companies in the Russell 3000 index have, on average, just one female director, according to the latest data from EY.

“The heat is certainly on” for boards to boost their diversity, Huennekens said, and not just by gender or other characteristics such as race, ethnicity, and age.

EY’s survey showed investors are also interested in how long directors sit on boards. Some survey respondents expressed concern that staying on a board for more than 10 years can compromise director independence.

“So when we talk about pressure on boards to focus on diversity, it comes through in a lot of different ways,” Huennekens said.

Board Expertise

Another top issue for investors in 2018 is building up board expertise in technology, climate change, and other areas, according to the survey.

Cybersecurity was by far the most common technology-related concern for investors in the survey, especially when it comes to protecting consumer data. Cyber threats are a growing concern for directors too, a recent poll by the National Association of Corporate Directors showed.

Investors also want boards to show they’re paying attention to the changing climate. The percentage of survey respondents that told EY climate is a priority has more than tripled since 2016.

“There’s certainly a hunger for more information” from companies, Huennekens said. So boards, particularly those in the energy and utility sectors, may want to consider providing more disclosure to investors on their “climate competency,” EY said.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bloomberglaw.com

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