Sodali Institutional Investor Survey 2016

Posted by Kiran Vasantham, Sodali, on Wednesday, February 17, 2016

Sodali conducted this inaugural global institutional investor survey to identify the key drivers and trends that companies should be aware of as we approach a significant engagement phase in relation to the 2016 Annual General Meeting season. In our survey we asked investors: what general governance themes are driving engagement; what factors make a compelling case for engagement; and what executive remuneration corporate disclosures companies should focus on.

The survey provides valuable insights outlining material drivers for investor engagement and will be a helpful tool for companies to determine the right approach during upcoming engagement opportunities. The outcomes from this survey should assist corporates in delivering the right message, collect valuable feedback, and consequently find common ground in challenging situations.

Key Findings

• 90% of investors are “reasonably satisfied” with companies’ corporate governance progress over the last 5 years.

• The survey reveals clear evidence that Governance factors are integrated into equity investment models. The key indicators identified relate to board composition and local market governance codes of best practice.

• The top 3 key topics investors are focusing on as we approach the 2016 proxy season include board composition & director elections, shareholder rights, and executive compensation. One European investor told us “not only are these the most important topics at the moment but they are occurring on the most frequent basis.”

• It is clear investors feel there should be more emphasis on companies to evidence progression through engagement.

• When analyzing what makes engagement successful, the most supported statements were: demonstrating a genuine commitment to improve; provision of a tangible action plan; and a better commitment from board directors to embrace dialogue with investors.

• There are clear market-specific differences among company representatives engaging with investors. One UK investor said “this is highly market dependent. For example more board members in the UK, and more IR and General Counsels in France.”

• Investors want to engage with independent board members on a more frequent basis, at this juncture it is slow progress, and admittedly this is market-specific.

• Investors are concerned by the lack of effort in general by corporations to engage on material say-on-pay issues that receive significant negative votes. From a geographical perspective the feeling among investors is aligned: One significant US index manager said “significant negative outcomes (above 15%) should lead to corporations initiating engagement with shareholders and a review of their compensation plan,” meanwhile a UK-based investor suggested “companies perhaps might not make any amendments but at least they should engage to understand why shareholders are dissenting,” finally a European-based investor agreed with both points “if above a certain threshold, directors should at least show a willingness to listen to the main objections of some of their shareholders”.

• It is evident from the survey that ESG factors will influence how investors review risk. Investors significantly support the statements “targets are closely linked to long-term value drivers” and “the implementation of long-term incentive plans” and this is aligned with the premises of creating value in the long-term.

Methodology

We approached a global institutional investor base targeting Corporate Governance analysts, ESG analysts, Equity Analysts and Portfolio Managers via an online platform, PDF documents, and interviews.

The survey was conducted between 1 November 2015 and 11 December 2015 to understand investor trends, perceptions and key drivers in the lead-up to the 2016 proxy season.

We received responses from institutional investors managing a combined $23 Trillion in assets under management. The geographical breakdown is as follows: 50% UK, 35% US, 15% Europe ex. UK.

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The complete publication, including survey results and graphics, is available here.