PwC’s Investor Resource Institute recently released its 2014 Investor Survey, which analyzes how investors are shaping today’s board governance landscape. With boards prone to more scrutiny as investors increasingly voice their concern, the following trends have emerged:
- Investors are generally happy with the way boards are assessing strategy, with 90% of responding investors expressing satisfaction. In general, investors are also satisfied with the way boards are overseeing risk and maintaining board expertise, both of which received an 84% satisfaction rate.
- Investors want boards with diverse and independent directors who have the right expertise for the job. About 80% of investors consider financial, risk management and operational expertise to be “very important” director attributes. Ninety-six percent of investors say gender diversity on boards is important.
- Direct communication between investors and boards is a priority. While investors say their engagement with directors has steadily increased both over the last three years and in the past 12 months, 48% of investors are dissatisfied with this dialogue.
- Risk remains a major topic of concern. Investors are not happy with the information available to them regarding a number of risk topics, including cyber risks (55%), climate change risks (58%) and key performance indicators about risk management objectives (45%).
Survey respondents represent a diverse mix of institutional investors with over $11 trillion in aggregate assets under management. About half of respondents represent pension funds and 40% represent asset managers. Based on assets under management, however, traditional asset managers represent 78% of the total pool of responding dollars.
What’s important to investors today?
Investors of all sizes and types have well-defined views about the roles of corporate boards and governance structures that they believe best serve investor interests, as well as the skills, attributes, and performance that they expect of individual directors. They communicate these views and expectations by participating in public policy debates, through their proxy votes, and by engaging in an increasing volume of direct shareholder-corporate dialogue. This section of our report describes these investor perspectives in greater depth.
What attributes are most needed on today’s boards?
According to all investors responding to our survey, financial, risk management, and operational expertise are important attributes board members should have, and about 80% of investors consider these to be “very important.” Industry expertise is also important, but investors are slightly more mixed as to the level of its import. Ninety-six percent of investors believe gender diversity on boards is important, but they are evenly split as to whether it is “very” or only “somewhat” important.
Focus on director independence
More than 90% of investors say that independence is a factor they consider when deciding whether to support a director candidate, up from 75% a year ago. Two-thirds of investors are influenced by a director’s affiliation with a board decision with which the investor disagreed. In particular, very large investors (i.e., those who manage assets valued at or above $100 billion) consider this aspect of judgment when making their election decisions, with 91% of these investors identifying it as a factor.
Elections have consequences
When investors vote, they want their voices to be heard. Even when a director is elected by a majority of shares cast, investors believe that boards should take into consideration levels of dissatisfaction that fall below 50%. Exactly when this dissatisfaction should trigger reconsidering nominating the questioned director depends on the size of investor. Based on the number of investors responding to our survey, most (55%) think that this threshold is between 11% and 25%. But when these responses are weighted according to AUM (so as to more accurately reflect proxy voting power), the trigger slides upward—nearly 70% of invested dollars believe nomination should be reconsidered when the negative vote is between 21% and 30%.
See full The Relationship Between Investors And Boards: PwC in PDF format here.
Also, PwC’s Center for Board Governance will be hosting its next Quarterly Webcast on Wednesday, November 5, from 2:00pm – 3:00pm ET. The discussion will compare Investor Survey results with key findings from PwC’s 2014 Annual Corporate Directors Survey. We hope you will be able to join us and feel free to reach out with any questions. For more information and to register for the webcast please visit http://bit.ly/1DEoUbn.