Building off momentum from 2017, board diversity and climate change are expected to take center stage in the 2018 proxy season.
The drumbeat is getting louder on both, said Kellie Huennekens, Washington-based associate director of the Ernst & Young LLP's Center for Board Matters, which provides corporate board directors with insight and education on governance issues and trends.
"As we continue to navigate a very challenging, competitive business environment," investors are looking for "a wide range of perspectives for boards to better challenge each other and think differently, and position (boards) to see around the corner," Ms. Huennekens said on investors' push for greater board diversity.
While some institutional investors have been pushing for greater gender diversity on boards for decades, the push has become broader, with investors looking for diversity in expertise and personal attributes like gender, age and ethnicity, Ms. Huennekens said.
Aside from board diversity and climate change, other issues expected to play a prominent role this proxy season are proxy access, director elections, gender pay equity and executive compensation, sources said.
A number of events in 2017 put the spotlight on board diversity and laid the groundwork for 2018 and beyond, sources said.
Those events included State Street Global Advisors and BlackRock Inc. casting votes against directors on corporate boards that lacked gender diversity; New York City Comptroller Scott Stringer and the $191.1 billion New York City Retirement Systems expanding their boardroom accountability project to focus on board diversity; and proxy-voting advisory firm Glass, Lewis & Co. announcing it will be issuing recommendations against nominating chairmen on all-male boards starting in 2019.
The onus is expected to be on midcap and small-cap companies where all-male boards are more prevalent, said Kern McPherson, senior director, North American research, at Glass Lewis in San Francisco. Only three S&P 500 companies have all male boards — Centene Corp., Dentsply Sirona Inc., and TransDigm Group Inc., Mr. McPherson said.
Amy Borrus, Washington-based deputy director of the Council of Institutional Investors, said she also expects the "barrage" of news reports on sexual harassment allegations in 2017 will give gender-related issues a boost in 2018.
There is "growing interest in corporate culture generally," Ms. Borrus said. "All of the attention on sexual harassment and sexual misconduct put a spotlight on how important it is for boards to focus on corporate culture."
In engagement conversations, board members should not be surprised if investors ask what the board is doing to mitigate sexual harassment and misconduct and how they are gauging employee views, Ms. Borrus said. "There will be a lot of pressure on the board to take responsibility and to really look carefully at corporate culture," she said.