2018 Institutional Investor Survey
Posted by John C. Wilcox, Morrow Sodali,
on Saturday, February 17, 2018
The positive response to Morrow Sodali’s 2018
Institutional Investor Survey goes to show how Institutional Investors continue
to recognize the importance of their stewardship activities, working to improve
their investee companies’ ESG practices through corporate engagement and proxy
voting. Also, fulfilling their fiduciary duty to their clients by driving
changes that increase shareholder value. The rise of index funds has also
increased reputational and regulatory pressure, causing both active and passive
investment managers to ensure strong corporate governance oversight.
Board effectiveness and executive pay
remain key issues for investors as we head into 2018. There is an
increased demand for companies to disclose relevant aspects of their
business strategy and more likelihood that Institutional Investors
will support credible activist strategies compared with previous
Our results show that an increasing number of
Institutional Investors will focus their attention on board effectiveness,
looking at the skills of each board member, considering these as the most
critical factor when evaluating directors. After skills and experience, gender
was chosen as the most significant board diversity factor, with geography, age
and ethnicity following behind.
Executive pay is still one of the main areas where
boards and shareholders are likely to disagree during 2018. Institutional
Investors are expected to up the ante when scrutinizing pay policies, demanding
enhanced disclosure of pay metrics and seeking a closer alignment between pay
and performance. Further pressure will come to bear on companies with excessive
pay practices, particularly with the introduction of the CEO pay ratio.
When evaluating remuneration plans, Institutional
Investors are interested in receiving information on the sustainability metrics
used, particularly those linked to a company’s risk management and business
strategy. For example, the incorporation of climate risk into remuneration plans
is likely to be a key topic for the most exposed industries.
Activism remains in the spotlight. The rise of
Investment Stewardship strategies is redefining how Institutional Investors
think about company performance and investment decisions. In this regard, many
Institutional Investors confirm that they are more likely to support activists
who put forward a credible story focused on long-term strategy. Institutional
Investors are assigning more resources to assess companies’ risks and
opportunities and are collaborating more to better understand the merits of
Many of the emerging issues will no doubt resonate
with our readers. We believe it’s important to keep abreast of the many changes
affecting proxy voting and corporate engagement. We hope the 2018 Institutional
Investor survey results will provide companies with useful insights and help
them navigate the complex world of corporate governance as they work to achieve
their long-term strategic goals.
About the Survey
This is Morrow Sodali’s 3rd Annual Institutional
Investor Survey. Forty-nine global Institutional Investors—managing a combined
$31 Trillion in assets under management—took part. We continue to monitor the
views of Investment Managers and Institutional Investors on a wide variety of
global trends and emerging issues around the Annual Shareholder Meeting, ESG
Engagement, Board Practices, Executive Pay, Activism and Investment Stewardship
The purpose of this year’s survey is to determine
which issues will have priority for Institutional Investor’s during the 2018
annual meeting season. Our goal is to alert clients to these issues and help
them prepare to manage and engage effectively with their shareholders.
Institutional Investors responding to this year’s survey have the following
Institutional Investors responding to Morrow
Sodali’s 2018 Survey revealed three critical areas of increasing concern:
need for a clear articulation of a portfolio company’s business strategy and
detailed information about the directors’ skills, qualifications, experience
and how each member contributes to the effectiveness of the board.
explanation of the business rationale for board decisions and how they align
with strategy and performance.
Based on our findings, we identified the following
top priorities for 2018:
Investors will prioritize skills ahead of gender or ethnic diversity. 71%
of respondents representing $23 Trillion AUM overwhelmingly felt that “Skills”
was the most important diversity criteria. 54% of respondents representing $17
Trillion AUM felt that engagement with shareholders on succession planning was
the most important issue.
Unjustified pay will come under intense scrutiny say 88% of respondents
representing $24 Trillion AUM. Respondents want to see better alignment
between pay and performance. This is up from 75% last year. 61% of respondents
representing $17 Trillion AUM suggest the CEO pay ratio disclosure will gain a
lot of attention and be a useful statistic. The rigor of incentive schemes
will also come under the microscope according to 46% of respondents managing
$17 Trillion AUM.
Investor collaboration around broader Annual Shareholder Meeting topics will
increase exponentially. Nearly two thirds of respondents representing $13
Trillion AUM stated collective engagement and collaboration with other
shareholders related to annual general meetings is a powerful tool to help
Institutional Investors are increasingly likely to support a credible activist
story say 61% of respondents representing $18 Trillion AUM. Poor capital
allocation is a key concern according to 54% of respondents representing $19
Trillion AUM. The Board’s role in capital allocation will receive greater
93% of respondents representing $30 Trillion AUM confirm ESG integration into
investment decision making is either fully integrated or progressing
towards full integration. Respondents want to see companies better
prepared to provide more detail around ESG risks and opportunities.
Investors seek enhanced disclosure around materiality and sustainable metrics
linked to long-term business strategy say 71% of respondents
representing $20 Trillion AUM. There is more demand to understand a company’s
purpose and boards should provide more detail in the annual report and in
particular, corporate governance statements.
What these answers tell us is that respondents to
the Morrow Sodali survey are looking beyond compliance and one-size-fits-all
voting policies. Instead they are seeking specific information from individual
portfolio companies that will help them understand the fundamentals of the
business and its strategic goals, the value contributed by the board of
directors and the links between board policies and decisions, management’s
effectiveness and the company’s long-term economic performance. This is good
news for companies willing to make these disclosures, as it opens the path to
closer relations with investors based on business fundamentals rather than
compliance with external standards.
Respondents’ answers to other questions further
indicate that they are taking a more individualized approach to portfolio
companies and moving away from standardized policy-based box-ticking voting
The complete publication is available
Harvard Law School Forum
on Corporate Governance and Financial Regulation
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