Panelists: Christina Maguire, VP, Proxy Voting and Governance Research, BNY Mellon; Glen Weinstein, EVP and Chief Legal Officer, iRobot; Theresa Molloy, Director, Governance and Shareholder Services, Prudential Financial.
Moderator: Bill Ultan, Senior Managing Director, Morrow & Co., LLC
On November 18th, NIRI Boston members got an update and great tips from panelists Christina Maguire, Glen Weinstein and Theresa Molloy, on issues such as Proxy Access, Say on Pay and Corporate Governance best practices. Following is a summary of the night’s discussion.
How to manage an effective shareholder engagement program
- Have your shareholders meet with your head of governance practice, internal compensation representative and the head of human resources when possible.
- If your IR department is a one-person shop, consider having a board member meet with shareholders, particularly if you have a director that is “camera ready.”
- The smartest thing is to make friends when you don’t need them. Have your board members establish a rapport with your large institutional investors well in advance of any potentially contentious proposal.
- Institutional investors often track what the effects are after meeting with a board member. “If we talk to you about proxy access plans, and in six months, you put the plan in place and it looks kind of like the conversation we had, we notice that,” said Christina Maguire.
How institutional investors view governance issues vs strategic decisions in evaluating a company
- It was stated that many institutions look at who is on your board, what their skill set is, and how those skills help drive the strategy that management has articulated on quarterly earnings calls.
- Then they look at compensation and compare your compensation and your performance relative to a small group of peers, and track it against a metric that makes sense for your particular sector (for example, ROIC for industrial or energy companies). Institutions also look at longer term periods and how your company is doing relative to the market.
- “What we find from issuers is that everyone pays to the median, regardless of performance. And that’s a problem, we are worried firms that are outperforming are losing really great executives, and in cases where companies underperform and pay to the median, we vote against their say on pay,” said Christina Maguire.
- “We believe that people operate in a much more ethical way when there’s transparency. Governance is really like a check-and-balance system in place,” said Christina Maguire.
- “We have a hybrid model [when reviewing proxy and governance matters],” said Christina Maguire. “We bring in the direct portfolio manager and ask for their opinion on companies. That’s really best practice.”
- IRO’s typically have not targeted index funds because of their passive management, but they are so prominent in the governance space. They may be passive investors but they are very active in your stock, they are smart, very thoughtful and they are active voters.
What investors want to see in terms of board disclosure
- Related to narrative, what matters is the content, not the length. How you present the skills about your board, how the board thinks about succession planning, how the board thinks about diversity, in a way that’s easy to understand and the thoughtful strategy behind these decisions.
- A matrix of skills structured so that institutional investors can reasonably quickly discern that you have the required SEC needs and subject matter expertise for your industry within your board.
- Panel members said that the number one thing shareholders care about is pay for performance. Institutions are paying attention to the equity component of compensation and wanting to see a strong alignment between the strategic goals of the company and the identified and disclosed metrics within the compensation disclosure and analysis (CD&A).
- It was recommended that companies use graphs and charts to condense information within the proxy on compensation matters.
Many thanks to Dora Gonzalez-Rodriguez, Associate at Sharon Merrill, for writing our November event summary.