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By Yin Wilczek
March 18 — Companies need to improve the way they communicate director qualifications to their investors, a new Ernst & Young (EY) LLP report finds.
In a recent poll of 50 institutional investors, investor associations and advisers, EY's Center for Board Matters found that 76 percent did not think companies did a good enough job of explaining why they had the right directors for their boardrooms.
In the 2015 proxy season, this can have ramifications given the higher scrutiny of directors and investors' push for proxy access, according to the report.
Proxy access is a process under which eligible shareholders can nominate directors and include their nominees in the company's proxy materials. More companies either are bringing proxy access to a shareholder vote or adopting it in their bylaws.
Among other suggestions, EY recommended that companies improve disclosures by explaining in their proxy materials which directors are qualified to oversee key risk and strategic areas, as well as how their qualifications align with their responsibilities.
In addition, companies should provide more disclosure around their board recruitment processes, the firm suggested.
“Beyond disclosure, ongoing dialogue with institutional investors that involves independent board leaders may allow for a rich discussion around board composition,” the report added.
The report also found that the respondents overwhelmingly favored rigorous board evaluations as a mechanism to stimulate turnover. However, the respondents disagreed about other approaches, such as term limits.
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