Survey results show how investors feel about corporate governance hot topics

ISS, the increasingly influential US proxy voting service, has published results from its annual global survey on listed company governance. These show what investors think about current hot topics such as unequal voting right, virtual meetings, pay ratios and board diversity.

The survey is used to review and develop the ISS voting policies on which voting recommendations for listed company general meetings are based. Final policies will be published in mid-November and will be applied by ISS in reviewing shareholder meetings to be held from 1 February 2018. Respondents to the survey included institutional investors and their representatives, as well as companies and their advisers and trade organisations, plus NGOs and other governance stakeholders.

Results of interest to UK-based issuers are as follows.

Unequal voting rights
Recent high-profile share issues that deviate from the one-share, one-vote norm, including the IPO of Snap Inc in the US which offered only non-voting shares to the public, have made this a topic of debate. For a sizeable proportion of investors (43%), unequal voting rights are never appropriate for a public company. The same percentage thought that such structures might be acceptable, but only if they are subject to automatic sunset requirements (for newly listed companies) or if they are periodically put to holders of the low-vote shares for re-approval. Only 5% of investors thought that companies should be free to choose whatever capital structure they see fit.

Electronic meetings

Most investors support the use of systems which allow members to participate remotely in a general meeting, although with some reservations about the use of meetings that are fully electronic with no physical place of meeting. Nearly a fifth of investors consider it acceptable, without reservation, for a company to hold a general meeting that is fully or partially electronic. However, over a third of investors (36%) do not consider a fully electronic or “virtual-only” meeting to be acceptable and another third (32%) would only be comfortable with a virtual-only meeting if it provides the same shareholder rights as a physical meeting. 8% of investors do not support any kind of electronic meeting.

CEO/employee pay ratios

UK and US issuers will from next year be required to disclose the ratio of CEO pay to the pay of the average worker in their business. ISS asked respondents how they intend to analyse this data. A minority (16%) indicated that they are not planning to make use of the new information, but nearly three-quarters of investors stated that they intend to either compare the ratios across companies/industry sectors, or assess year-on-year changes in the ratio at an individual company or use both of these methodologies. Others are planning to “wait-and-see”.

The survey also sought views on how shareholders would use the data. Among investors, the most frequent response was that it would be used as one data point in determining votes on remuneration resolutions, followed by using it as background material for engagement with the company.

Board gender diversity

More than two-thirds (69%) of investor respondents thought that it would be problematic if there were no female directors on a public company board and many thought that this might indicate problems with the board’s recruitment process. The most commonly preferred solution was engagement with the board and management.