Every year, the holidays seem to roll around and catch us by surprise. Amid the busy holiday season, it can be hard for corporate boards to find enough time for themselves, let alone all the hard-to-shop-for people on their list… No, we’re not talking about your mother-in-law, but rather the institutional investors, proxy advisors, and shareholder activists, who all seem to have a very keen idea of what they hope to unwrap this year.
If your board finds itself now in late December with little more than a thought to this year’s holiday gifting, don’t panic. We’ve put together a comprehensive holiday gift guide to help you find the perfect presents for the shareholders in your life. Let’s have a look:
1. Institutional Investors
As the matriarch of the board family, your institutional investors always seem to have your well-being at heart. They like to know that you’re making good decisions throughout the year, and they’re often thrilled to hear from you when your busy schedule allows a break to call home. For this busy Type-A personality, we recommend gifts that take the stress out of board engagement.
A clear plan for ESG oversight.
Environmental, social and governance (ESG) issues were vaulted into the spotlight in 2017, yet too many boards still view “ESG” as a tertiary concern rather than a paradigm shift. Investors like BlackRock and Vanguard went to great lengths in 2017 to define ESG factors, which extend far beyond “carbon emissions and political spending”. Show those special investors in your life that you understand the gravity of these factors—and the role they play in long-term value creation. Investors have emphasized that you don’t necessarily need to recruit ESG experts to the board… but you must have a plan.
Resources: Three Ways to Improve Your Board’s ESG Reporting (Insight), One Founding Member Shares the Investor Stewardship Group’s Mission (Episode)
Disclosure on culture and human capital management.
An aspect of your ESG plan, disclosure of culture and human capital management is an important item on investors’ wish lists, particularly as it relates to the board’s larger risk oversight strategy. Incidents like Wells Fargo, United Airlines and even Equifax have revealed the dangers of poor talent management and flawed risk-monitoring frameworks. Whether your industry of operation is manufacturing or consumer discretionary, you must demonstrate to investors your understanding of these risks—and that you have a plan if the worst ever comes to pass.
Resources: Will “Tone at the Bottom” Impact Your Shareholder Value? (Episode), How Boards Can Manage Reputation Risk in Today’s Digital World (Insight)
Diversity that ties directly to your strategy.
A clear alignment between company strategy and board composition… this remains at the top of investors’ wish lists this year. How is your board identifying gaps in skill sets? Measuring board member performance? Recruiting talent to carry the board through its long-term strategy? Most investors are willing to be patient; if your board made strides in diversity last year, then set new goals to continue that progress through 2018—and continue to improve your shareholder engagement efforts around this topic.
Resources: Trends in Board Recruitment and Mandatory Age Requirements (Episode), 3 Guidelines for Taking Action on Board Evaluation Results (Insight)
2. Proxy Advisors
For as long as you can remember, the proxy advisors in your life always seem to be dropping into holiday functions and offering guidance. While they have played a disciplinarian role throughout your life, you often acknowledge the value in their self-help advice. When it comes to gifting, these bookworms love a good proxy statement or CD&A.
Precedents for CEO pay ratio disclosure.
As companies prepare to disclose their CEO pay ratio in 2018, the governance world will be looking for precedents and shining examples from which a baseline can be established. At this point, hopefully your board has tested the various SEC-approved methodologies and settled on a pay story to tell. Institutional Shareholder Services (ISS) has expressed interest in assessing your CEO pay ratio over time and evaluating how it changes over a multi-year period. Ensure your board is confident in your baseline calculations, and focus on why your ratio is what it is. This would make an excellent stocking stuffer.
A well-organized proxy.
For the proxy advisors in your life, this gift never gets old. While other shareholders may skim your proxy, these loyalists always read it cover to cover. Why not make it easy to read and navigate? Use visuals to communicate key insights; focus on your board’s process; and don’t miss the opportunity to tell your story.
Resources: The Proxy Statement: 4 Best Practices for the 2018 Season (Insight), As Investors Ramp Up Disclosure Requests, What Should Boards Focus On? (Episode)
A seat at the governance table.
This gift is likely out of your price range, but maybe you can put in a good word with the big guy. Throughout the last two years, proxy advisors have been left off the roster of high-profile governance groups including the signatories of the 2016 Commonsense Corporate Governance Principles and the newly formed Investor Stewardship Group (ISG). Firms like Glass Lewis and ISS seem like logical contributors when drafting corporate governance principles, which is why their absence remains slightly mysterious. We’re anxious to see how the proxy advisory firms interact with the Investor Stewardship Group in 2018, particularly as the ISG’s Corporate Governance Principles go into effect on January 1.
Resources: The Investor Stewardship Principles: What Will Be the Impact? (Episode), Commonsense Corporate Governance Principles: What Happens Now? (Episode)
3. Shareholder Activists
Always the wildcard at holiday functions, Great Uncle Activist seems to have mastered the element of surprise. Despite his booming voice and eggnog-fueled anecdotes, you’ve developed a level of respect for the underlying truths he often spouts. Either way, you’ve learned to anticipate and prepare for his antics. This explosive personality just likes to know you can shoot from the hip; so don’t get caught flat-footed at the next holiday function.
A clear evaluation and succession plan (so they don’t have to bring their own).
When it comes to activists, the best gifts are the ones that don’t attract any attention. That’s why we recommend DIY gifts like a plate of cookies, a knitted scarf, or a well-communicated evaluation and succession plan. By now, boards should be thinking like activists in order to identify potential cracks in the company’s foundation. Activist Greg Taxin reminds us (minute 8:00): “Almost invariably, where you find a problem at a company—or a company that’s not performing well—you focus on the composition of the board.” How well does your board composition align with strategy? What mechanisms does your board use to evaluate and refresh?
Resources: How Boards Can Avoid a Disruptive Shareholder Activist (Episode), 3 Steps Your Board Can Take to Avoid Activist Attention (Insight)
A space heater.
Practical gifts are always a good idea. The activists who won their proxy fights this year (Carl Icahn, Nelson Peltz, Paul Singer) might appreciate a space heater. Those first couple board meetings will certainly be cold…
In all seriousness, happy holidays to you and your families and an early Happy New Year!