June 20, 2018

How Investors Read Proxies (In the Real World)

Recently, I blogged about a study that tracks whether mutual funds & proxy advisors are reading your proxy online. I threw in an aside that “If I was an institutional investor, I would still be asking for paper as that seems like a far easier way to actually read a proxy.” It might be easier to read a proxy if you did a straight read – but the reality is that investors drill down into the areas that they are most interested in.

In other words, investors typically read proxies electronically. They like the ability to word search. They like the ability to quickly move around. In fact, they like it when you provide links in your “executive summary” of the proxy to more detailed discussions. Karla Bos of Aon provides even more wisdom:

1. Another big reason that investors use electronic proxies (aside from sheer volume) – governance teams often cut & paste sections of the proxy into emails or other materials for their portfolio managers & proxy committees

2. Investors want links from the table of contents (no links there often means the rest of the proxy and perhaps the company’s governance are “old school” — first impressions count)

3. When investors analyze your proposals, before going to your proxy, many rely on proxy advisor reports or data feeds (for the facts, not their recommendations), so remember that if investors can’t quickly find what they need, the proxy advisors may not either

4. On word searches – ensuring your investors can quickly find what they want means you have to know them and the terms & content they’re looking for

5. I like how GE uses internal links – and even includes an index of frequently requested information right up front. But proxies don’t have to have all the bells & whistles that GE’s does to make navigation more shareholder friendly.

So there you have it, several more “pro tips” to learn from this blog. And yes, I was wrong. And you were right…

Revenue Recognition: Corp Fin Comments Begin

Just yesterday, I blogged that Corp Fin planned a lighter touch when issuing comments on the new revenue recognition standard – and now Steve Quinlivan has blogged about how the comments have begun rolling in…

Big Four Audit Quality Review Results Decline

As the Big Four appear to continue to push back against the PCAOB regulating them here in the US (the PCAOB’s budget was cut in December & much of the senior staff has been let go since), here is sobering news from the UK’s Financial Reporting Council:

The Big Four audit practices must act swiftly to reverse the decline in this year’s audit inspection results if they are to achieve the targets for audit quality set by the Financial Reporting Council (FRC). Overall results from the most recent inspections of eight firms by the FRC show that in 2017/18 72% of audits required no more than limited improvements compared with 78% in 2016/17. Among FTSE 350 company audits, 73% required no more than limited improvements against 81% in the prior year.

Across the Big 4, the fall in quality is due to a number of factors, including a failure to challenge management and show appropriate scepticism across their audits, poorer results for audits of banks. There has been an unacceptable deterioration in quality at one firm, KPMG. 50% of KPMG’s FTSE 350 audits required more than just limited improvements, compared to 35% in the previous year. As a result, KPMG will be subject to increased scrutiny by the FRC.

Meanwhile, two editorial pieces – this one by the financial editor of the Times and this one by a senior editor at Bloomberg – has suggested that the Big 4 might need to be broken up…

Broc Romanek