NACD Report Outlines Priorities For Investors in 2015 Proxy Season

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By Michael Greene

Nov. 13 — In a Nov. 13 report, the National Association of Corporate Directors has highlighted three key findings that investors will prioritize for the upcoming proxy season.

NACD's “Investor Perspectives: Critical Issues for Board Focus in 2015” draws from discussions with major U.S. institutional investors in September and October.

According to the report, three themes emerged from these discussions regarding the upcoming proxy season:

• investors are focused on “drivers” of effective board leadership;

• investors will hold directors accountable when they believe shareholders rights have been undermined; and

• high-quality communication between boards and investors is about context, not volume.

Director Accountability

According to the report, “investors emphasized that unilateral actions to change bylaws and/or their application in ways they believe adversely affect shareholder rights can be cause for significant concern.”

According to the report, investors will hold directors accountable when they undermine shareholder rights.

One investor quoted in the report said, “We encourage directors to have some discussion—why a particular action is being taken, the potential impact on shareholders, whether investors should be allowed to weigh in—and provide a rationale where appropriate. Otherwise the board appears blind to investors' view,”

Recently, Institutional Shareholder Services, Inc. adopted a standalone policy related to unilateral bylaw/charter amendments, stating that the firm will generally vote against directors that adopt amendments that “materially diminish[] shareholders' rights or that could adversely impact shareholders”.

Also of concern for investors was the “reliance on the recommendations of outside advisors in the absence of broader input, especially feedback from major shareholders,” the NACD report states.

‘Drivers' of Effective Leadership

Investors are more interested in “drivers” of outcome than the outcome itself, according to the NACD. Pursuant to this theme, investors highlighted two particular categories of boardroom processes: “Board ‘refreshment' practices” and “Board engagement in strategy-setting and oversight of risk management activities.”

According to the report, investors “look at both of these drivers of effective board leadership to understand how effective a board is likely to be at helping management navigate emerging risks, such as cyber threats, or dealing with unexpected crises and volatile economic conditions.”

High Quality Communication

Another point emphasized in the report is that investors are increasingly placing focus on the quality of the board's response to investor feedback, not on the volume of responses.

Investors expect more than “laundry lists and boilerplate statements about good governance” in proxy disclosures, according to the report.

Additionally, “[i]nvestors emphasized that providing a rationale for the board's decisions is a valuable way to establish credibility and gain investor confidence.”

One director said, “When directors say, ‘We realize this was not a popular choice but we weighed the alternatives and here's why we came to this conclusion,' it sends a very positive signal about the board's judgment.”

According to a recent Council of Institutional Investors report, both large companies and institutional investors agree “that both sides should take care throughout the shareholder proposal process to (1) ensure accuracy in any correspondence—whether by letters, dialogue or shareholder proposals; (2) be responsive; and (3) treat the other side with respect”.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The report is available for download at


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