Board diversity - with a particular focus on gender, race and ethnicity - was among the top three areas of focus expressed by the more than 60 institutional investors ($32 trillion in AUM), investor associations and advisors interviewed by the EY Center for Board Matters in connection with its "2019 Proxy Season Preview." The report - based on the firm's conversations with asset managers (42%), public funds (22%), labor funds (13%), socially responsible investors (13%), faith-based investors (8%) and others - captures investors' corporate governance views and priorities for the 2019 proxy season.
Notably, more than half of investors (53%) said that board diversity should be a top board focus in 2019, up from one-third three years ago; 19% cited diversity as part of a broader set of board composition considerations - including skill set, refreshment, and assessment; and 14% identified both board and executive diversity as an important focus for boards - up from 4% three years ago.
These additional priorities round out the top three - each of which is accompanied in the report by further topical detail, relevant data, and instructive key takeaways for the board:
- Investors want to understand, and want to see consistent strategy and risk disclosure on, how boards and management are factoring business-relevant E&S factors, i.e., those most likely to impact the company’s strategy, risk profile, and brand, into their long-term success, and how they are baking associated relevant considerations into their risk management and strategy-setting. Notably, investors are most commonly focused on climate risk - 38% of investors overall compared to 15% three years ago, and nearly half citing climate risk raised the TCFD as a reporting framework they support.
- Nearly 40% identified human capital management and corporate culture as a top priority for board focus (up from 6% three years ago) in relation to supporting the company's long-term strategy and risk mitigation in the form of reputation and brand protection and attracting the best talent. Notably, just 20% of investors citing HCM reportedly want increased disclosure; most investors said they currently are prioritizing dialogue with companies over disclosure, and some don't expect more disclosure or believe that more disclosure in this area is warranted.
Investors further provided insight on how companies' messaging and practices convey a balanced focus on short-term and long-term objectives; identified factors they consider in assessing board risk oversight (see that particularly instructive discussion on page 6); and suggested engagement quality improvement tips.
The report also captures the main themes expressed by investor respondents in a series of questions for the board to consider.