As a result of the analysis presented in this report, investors are encouraged to continue discussions with their investee companies on director nominations.
The following areas are particularly crucial to advance the US and French markets towards more robust processes and more effective boards.
Proxy access (in the US only)
The scale of change in the adoption of proxy access has been phenomenal over the last couple of years – nearly two thirds of S&P100 companies now have a proxy access bylaw in place, as opposed to two companies in 2014. This is an illustration of what consistent investor pressure can bring. That said, despite the surge, more than 30% of the index is yet to follow suit.
- “Is there proxy access for eligible shareholder nominations of director candidates?”
Board performance evaluations
Companies continue to be reluctant to disclose the results of the performance evaluations or publicly share specific actions that they seek to undertake following the review, and there is significant scope for more disclosure by companies that investors can ask for in this regard.
- “Can you disclose the results of your board performance evaluations in your annual report and/or proxy statement?”
- ”How frequently does your company undertake board performance evaluations?”
- ”Does your company use external firms to undertake some of these evaluations?”
Dwindling growth in gender diversity in the US calls for improved and coordinated efforts from investors. French companies have improved female representation on boards in line with regulatory requirements. However, their US counterparts have failed to record similar progress, leaving room for skepticism about investor interest in the issue.
- ”What is the percentage of women who sit on the board?”
- “Does your company have a diversity policy (disclosed)?”
Dual chair/CEO and LIDs
Investors are recommended to discuss company approaches to the separation of CEO and chair roles, particularly where governance practices in general appear to be weak. In the French market, there is increasingly a separation of CEO and chair roles, signaling a shift from previous common practice. Investors can also raise questions on whether the company has appointed an LID where the independence of the chair can be questioned because of his/her executive duties. This could enhance confidence in the independent decisionmaking process of the board.
- “Why are the positions of CEO and chair combined?”
- “Does your company have any plan to separate the roles in the future?”
- ”Has a lead director been appointed? If not, why?”
Investors are recommended to ask companies to disclose more specifically how candidates’ skills are supporting the long-term business strategy. ISS research points at improvements in baseline disclosures as well as specific disclosures (for example, on links between skills and business strategy) in both markets, but detailed reporting on this issue is still limited.
- ”What are the qualifications, attributes, skills, and experience to be represented on the board and related to company strategy?”
- “What kind of candidates and skills have the company searched for in the past fiscal year/ what kind is it currently looking for?”
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Engaging on director nominations