IS SHAREHOLDER ENGAGEMENT WITH COMPANIES ENTERING A NEW ERA?

 

BuildingTwo influential business groups are acknowledging corporate America’s shift towards more engagement with its shareholders.

The Business Roundtable Aug. 4 released its 2016 Principles of Corporate Governance, which is the first update of its guidance to public companies in four years.  Two weeks earlier, a group of 13 business leaders from large public companies and asset managers—including Warren Buffett, chairman of Berkshire Hathaway Inc., and Jamie Dimon, CEO of JPMorgan Chase & Co.—released a paper on “Commonsense Corporate Governance Principles.”

Both releases suggest that companies’ engagement with shareholders is more important than ever.

The Roundtable noted the current environment has been “shaped by fundamental changes” in how companies interact with their shareholders. “Business Roundtable CEOs believe that shareholder engagement will continue to be a critical corporate governance issue for U.S. companies in the years to come,” the group said.

Business representatives have come a long way considering that they lobbied hard against the legislation that ushered in the fundamental changes. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection required companies to give shareholders a say on pay practices. This shareholder right—albeit couched in a nonbinding vote—is credited with current engagement practices.

Of course, business leaders don’t view engagement as a one-way street. In exchange for increased access to boards and management, companies are asking their shareholders to be more transparent about their motives.

It remains to be seen how this heightened recognition of the importance of shareholder engagement will play out. One shareholder group—the Council of Institutional Investors (CII)—described the business leaders’ “Commonsense Principles” as a “call to action” for public companies to adopt “effective” corporate governance standards and practices.

For the CII, this translates into the corporate rejection of dual-class voting structures, the widespread adoption of proxy access mechanisms, and board action on shareholder proposals that win majority support.