What do investors want aside from the obvious? Stakeholder demands are high these days with continuously climbing regulatory scrutiny as well as shareholder activism. Investors wish to strike the right note concerning diversity, foster culture as well as hone key talent and drive transformation. So how can boards demonstrate their commitment to long term value creation while assuaging fears about the challenging risks at play? Read our top four takeaways to find out more.
1: Diversity
Why is diversity still topping investors lists of key issues? Because board quality is completely dependent on-board diversity. Data from Corporate Women Directors International highlights that women sit on 16.7% of public company board seats internationally and 21.4% of seats on the boards of the 200 largest companies worldwide, the Fortune Global 200.
Ernest and Young in a recent report, ‘The EY Women In Power and Utilities Index’ have found that women in the utilities industry will contribute hugely to navigating digital disruption and innovation, if more opportunities are afforded. Investors are keen to see diverse talent make clear indents into companies like these in 2019.
Michelle Edkins, Managing Director of Blackrock argues that, “Diversity is a leadership challenge, as diverse boards are probably more complex to lead, but more effective at what they do.”
2: Environmental and Social Issues
The EY Centre for Board Matters in their most recent survey of governance specialists from the investor community found that 49% of investors believed that a top board focus should be business-relevant environmental and social factors. A third of these investors were focused entirely on climate change.
From this report, investors demonstrated that certain steps can strike the right note including: ‘charging a dedicated board committee, recruiting directors with business-relevant sustainability expertise, talking to external independent experts or setting a clear and ongoing agenda for the board to discuss sustainability impacts’.
3: Talent Retention
For corporate companies thinking strategically, not having the right talent to execute key goals is a huge anxiety for investors. This is especially apparent in the age of digital disruption. Stripe in a 2018 study with Harris Poll found that for over 1000 C-level executives, ‘access to developers’ was a concern for 61% of them. Research has proven that among highly complex roles like those of software developers, high performers are over 800% more productive when compared to their co-workers!
McKinsey & Company advocate that for worried boards and investors alike, ‘companies should tailor retention approached to the mind-sets and the motivations of specific employees.’
4: Ready, Steady, Activism
Boards can anticipate the demands of activist investors, by framing the conversation differently.
The rise of activism does not mean just negative connotations for boards. Dominic Barton, Global Managing Director at McKinsey & Company, argues that there are both “good activists and bad activists”. Many positive instances of activist investors include those who add value and bring excellent preparation, research and thoughtfully formulated questions to each board meeting.
But for those who pose a greater threat, boards should be eyeing their own performance from within. McKinsey & Company recommend ‘assembling a team to take a good, hard look at your performance’ with the end goal being for managers to examine their own strategy, governance, and operations with an eye to unearth opportunities in order to improve performance’. Not only will managers be able to elevate their efficiency when faced with actual activist investors, but they will also be more confident in their defence of activist investors.
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