Our friends at ISS just came out with the results of their 2019 annual policy survey. Overall, the survey results were in-line with what I would expect. There were no big surprises, but here are a few areas I found interesting, as well as some suggestions for ISS to make the survey results more helpful:
It’s interesting to see there were way more non-investor respondents than investor respondents. In fact, it was more than double. And, the non-investors that responded were mostly public companies with assets of over $1 billion. This shows public companies are willing to participate and want to be heard. When ISS first opened up the survey to companies, many companies were hesitant to respond for fear of retribution in the proxy voting recommendations on their companies. The large number of non-investor responses (265) this year shows the fear has gone away for the most part. The fact most of the corporate respondents were larger companies makes sense because a lot of the smaller companies don’t get covered by ISS.
Support from both investors and non-investors for board gender diversity was not as strong as I would have expected (or hoped). This shows that while the issue is getting a lot more public attention from some of the world's largest investors, attitudes in the corporate/investment community as a whole are still slow to change. To me, this is disappointing. US readers should keep in mind the survey result in this category are global. It would be helpful for ISS to provide a geographic breakdown on board gender diversity questions since we know different jurisdictions handle this issue very differently.
On the issue of how many public company boards any one sitting director should serve on (a.k.a. "over-boarding"), it's no surprise investors leaned towards bright-line limits and non-investors favored flexibility. Here, too, these results aggregate responses from around the world. It would be more helpful to see the results on the over-boarding questions broken down by jurisdiction, since over-boarding is of increasing interest to investors in US companies, especially as the job of the US corporate director continues to get more demanding.
This year's survey took the temperature on investor and non-investor attitudes on oversight, disclosure and mitigation of climate change effects. Future ISS surveys should (and will probably) ask about ESG issues beyond just climate change given the increase in the number of and support for ESG-related shareholder proposals (take a look at The Conference Board’s most recent data) and ISS’ movement into this area. Based on everything I'm hearing throughout the corporate governance and legal community, ESG is where the future battles are going to be fought.
As always, readers need to keep in mind that the investor and non-investor responses will naturally have a gap. The people who are responding on behalf of investors are likely to be proxy voting professionals or portfolio managers who are inclined to expect companies to disclose rather than not. It’s the “More disclosure is always better” mindset. On the other side, the people who are responding on behalf of corporations are usually in-house lawyers or their advisors who tend to be more conservative on disclosure and work for executives with a “Why should we disclose it if it’s not required?” mindset. Given those natural biases, it would add another dimension to see the year-over-year results for investors and non-investors separately and analyze the trends in each group's attitudes over time.
Readers also have to keep in mind that the results may not line up with the proxy voting results you've seen on these same issues because the survey counts each investor as one without factoring in how large the investor is. So, if The Vanguard Group responded, each of their responses would have been counted exactly the same as the responses of the Sisters of Charity of Saint Elizabeth. Instead of "one-share, one-vote," these surveys are "one-investor, one-vote." Imagine if proxy voting were counted that way!
