Activists Seen by Corporate Board Members as Effective Investorsby and
PwC survey shows directors think activism is helping companies
Boards raise concern about value of shareholder meetings
Shareholder activists are winning kudos from an unexpected quarter: corporate directors.
Eighty percent of board members say that activism has compelled their companies to “more effectively evaluate strategy, execution and capital allocation,” according to a PricewaterhouseCoopers survey published Tuesday. About the same number found that activists helped improve operations. At the same time, almost 60 percent said those pushing for change are “too short-term focused.”
While boards are meeting with shareholders more than ever before, “directors aren’t overwhelmingly convinced that these dialogues are valuable, and question their impact on shareholder behavior,” according to the survey of more than 800 U.S. public company board members.
Only a quarter said investors are well-prepared for engagement meetings, the rest said they were somewhat or not at all prepared. More than a quarter of directors said shareholders sent the wrong representatives to such sessions. About one third said they strongly believe they received valuable insights from these sessions, one in five directors said they get none.
"I think there is work that needs to be done on both sides,” said Paula Loop, leader of PwC’s Governance Insights Center. “Investors need to be more prepared, have the right people in the room and be able to demonstrate that these discussions are worthwhile. Directors need to focus on insights that they are getting from the sessions.”
Among the survey’s other highlights:
- About two in five directors said investor discussions didn’t appear to have much effect on proxy voting or investment decisions.
- More than 90 percent of respondents said it was important to improve board diversity. But about one-fifth said there were significant impediments to doing so, including the lack of diversity among current or former CEOs, one of the most sought after groups of potential director candidates.
- Even as more boards offer access, not all topics are open for discussion with stock owners. Nearly half of directors didn’t think it was appropriate for them to discuss risk management oversight. About a third opposed discussing company strategy and the performance of top managers, according to the survey.
PricewaterhouseCoopers also found companies are moving to make proxy statements more comprehensive. More than 60 percent of directors say their boards took action over the past year to enhance disclosure of the company’s executive compensation plan. About one third say their boards have bolstered disclosure related to corporate strategy and the audit committee’s responsibilities.
“It’s difficult to get a feel of the board through the proxy,” said TK Kerstetter, founder and chief executive officer of Boardroom Resources LLC, an adviser to corporate boards.
Engagement allows investors to “evaluate if this is a board that gets it,” he said. “Investors have always been frustrated that they can’t watch boards operate. It’s only natural that they want to have the opportunity for a face-to-face visit.”
PwC surveys U.S. corporate directors annually. Of the 884 respondents this year, 71 percent are with companies that have more than $1 billion in annual revenue, 83 percent are male and 17 percent female.