The level of engagement between institutional investors and U.S. companies has reached an all-time high and produced high degrees of success, ranging from constructive dialogues to changes in corporate policies, according to a study released Thursday prepared by Institutional Shareholder Services and commissioned by the Investor Responsibility Research Center Institute.
The study — Defining Engagement: An Update on the Evolving Relationship Between Shareholders, Directors, and Executives — found nearly half of investors and companies attributed say on pay — the requirement that U.S. companies conduct a non-binding shareholder vote to ratify compensation of the CEO and other top executives — as the cause for increased engagement since a 2011 study.
Among investors, 55% reported more than 10 engagements, up from 31% in the earlier study. Among companies, 47% reported initiating more than 10 engagements with investors, up from 30% three years ago.
The study defines engagement as direct contact between a shareholder and a company.
Aside from compensation, investors pointed to an increase in proxy fights and “vote no” campaigns on directors or social, environmental and governance issues as reasons for engagement. Beyond pay issues, companies cited financial results, mergers or industry-specific issues.
In measuring success, 73% of responding investors cited companies agreeing to provide additional disclosure or a change in policies or practices. Almost two-thirds of investors defined success as a constructive dialogue. Among corporate respondents, 93% cited constructive “dialogue on specific issues of concern was sufficient to make an engagement successful; while 69% of issuers said that the establishment of a dialogue, even if contentious, was sufficient to constitute success,” the study said.
The 48-page study included an online survey open from September to December 2013. The survey generated responses from 133 U.S.-listed companies with a combined market capitalization of $2.3 trillion and 82 institutional investors with a combined $17 trillion in assets under management. Investors included public employee pension funds, multiemployer pension funds, money management firms, hedge funds and mutual fund firms. The survey was followed by in-depth interviews with 20 issuers and 25 investors conducted from November 2013 to February 2014, the report said.
The study is available on the IRRC website.
