Proxy statements this year show a sharp rise in willingness to disclose board members’ skills, as companies become increasingly attuned to targeting their reporting at investor demands.
Almost half (46 percent) of S&P 500 companies include a skills matrix in their 2018 proxy, up from 27 percent last year and just 11 percent in 2015, according to a new report by the EY Center for Board Matters (CBM).
The top director qualifications highlighted in skills matrices this year include: corporate finance or accounting (68 percent of directors), industry or related industry (55 percent), international or global (51 percent), board experience or corporate governance (50 percent), risk (44 percent) and government, public policy or regulatory (37 percent).
Jamie Smith, associate director with EY CBM, notes that skills matrices are part of a wholesale evolution in proxy statements as companies shift from a strictly compliance-focused effort to using proxies as a communications tool. Investors have explained that it’s useful to have a snapshot of directors’ qualifications, and now information that many boards previously held but didn’t disclose is being released.
Despite the increased use of matrices, the quality of disclosure they provide varies, Smith tells IR Magazine sister publication Corporate Secretary. Good practice is to align the matrix with directors’ biographies so that it is clear which board member has which skills, she explains.
In a similar vein, the research finds that 56 percent of S&P 500 company proxies used graphics this year to highlight different aspects of board diversity, an increase from 20 percent three years ago. The most frequently highlighted feature is tenure, followed by gender, race/ethnicity and age, according to the report.
Diversity and engagement
The research also finds evidence of the trend toward increasing gender diversity on boards: 49 percent of S&P 500 companies now have three or more women directors, up from 35 percent in 2015. ‘It’s always a concern that companies will tick the diversity box and move on,’ says Smith, but such figures are ‘encouraging.’
Among the S&P 1500, the proportion of companies with three or more female directors has grown from 19 percent to 29 percent between 2015 and 2018. This indicates growing diversity but also that larger companies tend to have a greater number of women on their board. The difference is a result of larger companies being corporate-governance leaders that also face greater public and institutional investor pressure, according to Smith. Larger companies also sometimes have larger boards, she notes.
The move to greater gender diversity, amid greater pressure from institutional investors such as State Street and BlackRock, has been marked by overall slow rates of change. Since 2013, the proportion of women-held directorships at S&P 1500 companies has grown only 1 percentage point per year, a pace at which gender parity would be more than three decades away. According to EY, however, the proportion has already increased by 2 percentage points – from 19 percent to 21 percent – in the first half of 2018. ‘The rate of increase has, finally, accelerated,’ the report’s authors write.
The survey further finds growing levels of investor engagement. So far in 2018, more than three quarters (77 percent) of S&P 500 companies have disclosed engaging with investors during the previous year – an increase of 21 percentage points since 2015. Directors are also increasingly involved in talks with shareholders, according to the research, supporting anecdotal evidence. One third of the companies disclosing engagement this year say board members were involved, up from less than a fifth of companies that disclosed engagement three years ago.
The disclosure on engagement varies widely, Smith says. It ranges from simply stating that a company spoke to its largest shareholders, to providing a detailed breakdown of which investors were contacted, how many responded, which topics were discussed and who from the company was involved, she adds.
Forty-five percent of companies that disclosed engagement this year also disclosed making engagement-related changes – most commonly in terms of executive compensation. That focus on compensation appears to pay dividends, with overall support for say-on-pay proposals remaining at around 91 percent for nearly all companies, and the proportion of proposals failing to receive 50 percent backing continuing to stick at around 2 percent, the research finds.
