February 24, 2016

Institutional Investors: “Trust, But Verify” on Portfolio Company Governance

Institutional investors will seek to “trust, but verify” the performance and governance of their portfolio companies in 2016, according to this recent Russell Reynolds report, which is based in large part on interviews with numerous asset managers, pension funds, shareholder organizations, proxy advisors and activist investors world-wide.

US-specific take-a-ways include:

  • There will be a focus on improving the quality of engagement between investors and boards, including through individual meetings between investors and board leaders.
  • Investors are pushing to have boards designate one or two directors as point people who will engage with investors meaningfully and appropriately about the board’s role in strategy development, executive compensation, and CEO succession planning.
  • Boards will start to look for more investor-savvy directors, whether from the investment community or from the ranks of current and former CEOs and CFOs who have dealt with investors regularly. At the same time, investors will be under pressure to improve the quality of their own engagement with boards—for example, by limiting “gotcha” questions.
  • Some very large institutional investors will push harder for regular (every third year) external board assessments, following the British and French models.
  • Board leaders, whether chairmen or lead directors, will see a new focus on their precise roles and responsibilities for board oversight of management (with requests that this be publicly disclosed).
  • Since the DOL has clarified fiduciaries’ ability to consider ESG factors (see this release), we expect to see more interest from all types of investors in disclosure of environmental and social risks.

See this related Forbes article and King & Spalding memo.

New Climate Disclosure Task Force

Late last month, the Financial Stability Board announced the initial membership of its industry-led task force on climate-related financial disclosures including four Vice Chairs to work alongside Task Force Chair, former NYC Mayor Michael Bloomberg – who currently serves as Chair of SASB and United Nations Secretary-General’s Special Envoy for Cities and Climate Change. Members include “data users” JPMorgan Chase and BlackRock and “data preparers” BHP Hilton and Air Liquide, as well as experts associated with Mercer, KPMG, S&P and HSBC. SASB director and former SEC Chair Mary Schapiro is identified on the Task Force website as Secretariat and Special Advisor to the Chair.

The Task Force, which met for the first time earlier this month, reportedly plans to deliver its first report re: current levels of disclosure and the scope of its work in March, and the second report suggesting voluntary disclosure guidelines by year-end.

See my earlier blog regarding this new Task Force.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Study: Experience With Board Gender Quota Increases Director Support
– FEI Disclosure Effectiveness Review: A Preview
– Survey: Progress Slowing on Board Gender Diversity
– Username/Password Breaches: Notification & Other Considerations
– Social Media & the Securities Laws


– by Randi Val Morrison