Shareholders Pressure Boards for More Rights, Greater Diversity
Shareholders are renewing pressure on key governance issues such as shareholder rights and board diversity ahead of this year’s annual meetings.
Snap—the company that owns popular social media app Snapchat—last week became the first company ever to have an initial public offering (IPO) of nonvoting stock. Data from Dealogic indicate that issuing shares with restricted voting rights at the time of an IPO is becoming increasingly popular, especially among technology companies. While proponents argue that limiting voting rights shields companies from activist investors focused on short-term earnings, some governance experts and the Council of Institutional Investors have warned index funds against investing in Snap because of its multi-class structure, according to Reuters.
Asset manager State Street Global Advisors also announced this week that it will begin voting against those companies responsible for director nominations on boards that lack gender diversity. State Street will initially target boards without any women, and companies will be asked to explain how they have taken steps to improve gender diversity or explain why they think they don’t need to. For most Russell 3000 companies, State Street’s voting policies won’t go into effect for another year.
Implications for Boards: Investors are now holding boards to higher governance standards. Boards should review their stockholder voting structures and consider the Commonsense Principles of Corporate Governance, which claims that “dual class voting is not best practice.” State Street’s heightened attention to gender diversity in the coming year should also prompt boards to review their board skill sets and recruiting processes in order to diversify the candidate pool if necessary.
Key Questions Directors Can Ask: Have we adequately explained the rationale for nominating each board candidate in our proxy statement? Do our board candidates reflect the diversity of our employees, customers, and shareholders, and, if not, what steps will our board take to better represent the views of these constituents? Does our company have a dual-class or multi-class share structure, and, if so, how do our shareholders perceive this structure?
NACD Resources: NACD’s Director-Investor Dialogue: Building a Strategic-Asset Board provides guidance from Fortune 500 committee chairs and leading investors on aligning board composition and strategy, and discusses how to expand board recruitment to include non-traditional candidates. NACD’s Board-Shareholder Engagement Resource Center offers a collection of tools directors can use to better communicate with investors. For instigating diversity in the boardroom, visit NACD’s Board Diversity Resource Center.
Related NACD Event: Join us at the 2017 NACD Global Board Leaders’ Summit in National Harbor, Maryland (Oct. 1–4) to learn more about how boardroom diversity can lead to new ways of doing business. Reserve your seat by March 31 to receive $1,500 off.
Navigating M&A in an Uncertain Environment Researchers have found that the vast majority of merger and acquisition deals fail to achieve their objectives in one way or another. A new paper from NACD and consulting firm Protiviti suggests five critical questions boards can ask about their deal-making strategy.
Five Key Steps for Building a Climate-Competent Board Ceres’ Veena Ramani outlines what it takes to develop climate competency so that boards can better identify climate-related risks and opportunities.
A Well-Tailored Story of Shareholder Activism Learn how Chico’s FAS successfully avoided an activist’s campaign by altering its strategy and adopting leading governance best practices.
April 25 | New York, NY | Leading Minds of Compensation-East
April 25 | New York, NY | Building the Strategic-Asset Board
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Have a great weekend, and thank you for your commitment to boardroom excellence.
The NACD Team