EY Center for Board Matters' "2024 Proxy Season Preview" (online here)—reflecting the firm's conversations with institutional investors representing $50 trillion AUM*—summarizes investor views on portfolio company priorities, board quality and effectiveness, engagement priorities, and sustainability-related risks.
Among the key takeaways:
Portfolio priorities differ from company-specific priorities—While the topics investors want companies to prioritize in 2024 differs from what boards plan to prioritize (we reported on here (see “On the 2024 Board & Committee Agendas”), among other potential factors contributing to the discrepancy, investors made it clear that their identification of aggregate portfolio priorities differs from their company-specific priorities, which are based on business-specific materiality and thus logically vary by company.
Investors prefer overall board competency to issue-expert directors—Investor support for issue-expert directors (such as cyber and climate) has declined significantly year-over-year, with 48% of respondents in favor of this approach vs. 63% in last year’s survey. Comparatively, support for topic-specific director training and education to develop board expertise in particular areas climbed from 79% last year to 81% this year.
As a result, companies are advised to provide robust disclosure about board training and education in relation to the board’s ability to effectively exercise its oversight responsibilities:
While adding a director with specific expertise may make sense for some companies, investors are wary of the unintended consequences of boards filling seats with singular subject-matter experts and losing generalists with more operational experience. They also prioritize having the full board upskilled and value the objectivity and perspectives that an external expert can bring in educating the board.
Investors are focused on oversight structure & practices across engagement priorities—On par with last year, the top three engagement priorities for 2024 cited by investors are climate-related risks and opportunities (particularly for high emitters), workforce and board diversity, and strategic workforce issues beyond diversity. Nature / biodiversity and responsible AI rounded out the top five. More generally, investors want to understand how boards are overseeing these and other areas of focus.
“ESG” is “out,” but discrete topics are still in—Consistent with numerous other accounts, the ESG acronym has diminished in popularity in favor of a focus on specific, material, company-specific risks and opportunities.
Each of these focal areas is accompanied in the report by further topical detail, elaboration on the polling data, and instructive key takeaways for the board. The report also captures key themes expressed by the investor respondents in a series of "Questions for the board to consider."
*50% asset managers | 23% public funds | 13% socially responsible investment managers | 6% labor funds | 6% faith-based investors | 2% investor consultants