Institutional Investor Survey 2016

Sodali Investor Survey – January 2016

Promoting a better understanding among investors and issuers

Companies and Boards have made some good progress in improving their governance over the last 5 years; hence the investors believe they need to intensify their efforts now. 

90% of investors are ‘reasonably satisfied’ with companies’ corporate governance progress over the last 5 years. Still, they would expect improvements to the overall disclosure, particularly on executive remuneration and Board diversity, as well as a constructive engagement with the Board in order to respond to their requirements for greater accountability and transparency.

Also, governance issues are not only analysed a posteriori, but more and more incorporated into the investment decision process: while portfolio managers and research analysts review the companies’ future prospects, they evaluate the corporate governance factors in their investment decision-making process.

Our survey reveals what are the key factors that are considered by long-term capital providers when exercising their fiduciary duties through proxy voting.  As we approach the 2016 proxy season, the 3 key topics that investors are focusing on include: board composition & director elections, shareholder rights and executive compensation.

The results show that engagement between company and shareholders plays a decisive role in the decision-making process: the dialogue is perceived as being constructive if the company really demonstrates a genuine commitment to improve, and this should result in a progressive outcome that aligns the interests of companies and its stakeholders. 

The survey also indicates that investors demonstrate a strong pragmatism and do not push for the adoption of best practices only. For instance, if the CEO and the Chairman have a combined role – a scenario often criticised - most investors do admit that a lead director offers a valuable counter-power especially if she/he is independent and with an oversight of potential conflicts of interest. 

Remuneration remains on top of the most discussed topics and the survey shows that investors expect, on average, that companies react to a Say-on-Pay vote with >20% dissent. Moreover, beyond the compliance of proxy advisory firms’ policies, investors expect a strong alignment between performance and the level of remuneration. 

Overall the survey emphasizes the fact that investors’ standards are getting progressively tougher and their outlook is more long-term focused. Investors request more details to better understand companies’ strategy and governance developments in order to ensure that shareholders’ interests are well protected.