Shareholder Engagement: Prepare Now for Next Proxy Season
Proxy advisory firms Institutional Shareholder Services (ISS) and Glass, Lewis & Co. retained strong influence over shareholder votes during the 2013 proxy season. But a subtle shift is underway as institutions move away from “voting with their feet” and selling a losing stock. Instead, they are staffing up compliance departments and proactively using corporate governance as a tool to improve corporate performance. To be sure, institutions are still buying the proxy advisor reports and expertise, but more and more consider the intelligence an important input and are not blindly following these firms’ voting recommendations.
Companies are spotting this opening and learning to take their cases directly to the institutions. Management teams are beginning to view engagement as a deeper relationship-building process that can improve the odds of a successful voting outcome. This is a departure from companies’ traditional practices of engaging institutions only during the proxy season in a mad scramble to get votes. Instead, they use the off-season to inform and educate institutions on their own unique corporate governance principles, and to explain outliers that do not fit the proxy advisors’ specific guidelines.