Ernst & Young: Dramatic shift in company-shareholder engagement

By Rob Starr, Content Manager, Big4.com

In a new analysis, Ernst & Young LLP finds that company-investor engagement has seen a significant component of some new governance  trends. They are : the impact of say-on-pay (SOP) goes beyond compensation; shareholder proposal topics shift and agreements for withdrawals are reached; board accountability measures continue to strengthen; and, director opposition votes show change in investors’ voting practices. Companies are using such engagement to respond to investor concerns, secure support for proposals put to shareholder vote and mitigate potential exposure to investor campaigns.

Four key trends of the 2012 proxy season– reveals four emerging governance trends: the impact of say-on-pay (SOP) goes beyond compensation; shareholder proposal topics shift and agreements for withdrawals are reached; board accountability measures continue to strengthen; and, director opposition votes show change in investors’ voting practices.

The continued overall high support for SOP proposals, averaging 90%, is in part due to engagement. For example, proxy statements for companies that received less than 70% support on their 2011 SOP proposals show that nearly all made changes to their compensation programs as a result of SOP related dialogue.

Companies have increasingly acted to implement annual board elections, adopt majority vote standards for director elections and appoint independent board leaders in response to long-standing investor support for shareholder proposals on these topics. Investors continue to press for these reforms; proposals on these three topics comprised approximately 20% of all shareholder proposals submitted for 2012 meetings to date. While 2012 has seen an increase in attention to “vote no” campaigns, overall director opposition votes remain low and, as a result of SOP proposals, compensation is no longer a primary driver of opposition votes.