Investor dissent rising over board appointments

Oct 26, 2018
Shareholders demanding more from big decision makers

An annual review by corporate governance firm Equiniti reveals that more shareholders are speaking out about board appointments they either don’t agree with or that they say lack substance.

Annual meetings increasingly involve questions about the election of key board members, where normally, firms simply explain their spending decisions to investors, Equinity data shows. Data from 345 UK AGMs recorded by Equiniti this year shows only 70 percent of companies achieved more than 95 percent votes in favour for the election of the board chair, a sharp fall from 81 percent in 2017. This year, one in 10 companies also failed to hit 90 percent support for the board chair, up from 7 percent in 2017, adds Equiniti. Reasons for the change include unjustifiable executive pay and investor doubt about the commitment of some board hires.

‘Shareholders want to see proof that all members of the board are pulling their weight and adding tangible value to the businesses they serve,’ Chris Stamp, boardroom director at Equiniti’s corporate governance unit Prism Cosec, tells IR Magazine.

Speaking on what the changes mean for IROs, Stamp says: ‘This will demand greater dialogue and collaboration with their company secretarial colleagues to get a more in-depth understanding of any feedback from the wider shareholder community, co-ordinate messaging in the annual report and ensure that issues are discussed prior to the AGM.’

Noting that ‘with executive pay a hot issue, it is little surprise that the remuneration committee chair might receive votes against election,’ the Equiniti report points to a 5 percentage-point drop – down to 83 percent – in the number of companies gaining more than 95 percent approval for the remuneration committee. At the same time, those failing to hit 90 percent support rose from 6 percent in 2017 to 8 percent this year.

In other findings, audit committee chair positions – usually well supported by shareholders – were more contested. The number of audit committee appointments gaining support above 95 percent fell 6 percentage points to 85 percent in 2018, while approvals of less than 90 percent rose 2 percentage points to 7 percent.

Recent high-profile cases of poor corporate governance, such as Carillion and Patisserie Valerie, have given companies cause for caution about next year’s figures as the trend towards greater shareholder activism continues. The review suggests a watchword for 2019 could be ‘overboarding’, where directors spread themselves too thin across too many company boards – an issue that has already gained investor focus in the US.

‘Highlighting concerns early gives the company time to address any anxiety and communicate with shareholders to provide reassurance. Improving engagement with shareholders also demonstrates that companies are listening to the voice of shareholders – a form of compromise that can make a big difference – and are willing to address them proactively,’ says Stamp.

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