NACD Insight and Analysis: Communicating for Long-Term Value
This week, NACD bridged the gap between corporate directors and the investors they represent. In conjunction with Broadridge Financial Solutions, NACD hosted a Virtual Roundtable at the Newseum in Washington, DC, bringing together leaders from the investment community with directors to discuss the disclosures and communication strategies.
Hosted by NACD President and CEO Ken Daly, the Roundtable featured investment community representatives from T. Rowe Price, CalSTRS, and Vanguard Group, Inc. They engaged in dialogue with board members from Forrester Research, Broadridge Financial Solutions, Kimberly-Clark, Legg Mason, SmartPros Ltd., and Assure Holding Corporation. With the intent to inform directors on what investors are looking for in the proxy in the upcoming year, the Roundtable discussion covered compensation, committee reports, and director qualification disclosures.
The investment managers represented at the Roundtable do not take a “check-the-box” approach based on guidance from proxy advisory firms; instead, they choose to complete their own analysis. Notably, these active shareholders emphasized quality over quantity with respect to disclosures in the proxy statement. Simply an increase in the amount of disclosures from companies only makes it more difficult for investors to uncover the valuable information in the proxy. The participating investors further suggested companies should make an effort to provide quality disclosures regarding how executive compensation matches performance, and how incentives are linked to the business strategy, for example.
The participating investors also stressed the improvements that need to be made regarding the new director qualification disclosures resulting from the SEC Proxy Disclosure Enhancement rules. They felt many companies did not fully explain how each director’s skill sets contributed to the company’s business strategy.
Lastly, the investors offered advice to the boardroom on director succession. After directors have analyzed their board’s composition in light of the company’s strategy, they find a larger challenge in recruiting directors to fill the gaps in skill sets. As a solution, Anne Sheehan of CalSTRS suggested that directors should “think of their shareholders as stakeholders.” Long-term investors have the same interests as directors and might be able to offer potential candidates whose skills complement the company’s business strategy and build its long-term value.