Investors sharpen focus on skills mix, risk management and business strategy

Institutional investors will be scrutinising board diversity and composition more closely in 2018, according to a report published by the Governance Institute of Australia.

The consulting group, Morrow Sodali, has released its 2018 Institutional Investor Survey report, which found that large investors will focus more closely on directors’ skills, qualifications, experience and their individual contribution to the effectiveness of the board this year.

“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,” the report states.

“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.”

“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.”

View the full report here.


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