Institutional Shareholders Increasing Corp. Governance Focus

According to an ISS press release, in virtually every market, investors said that aligning executive pay with performance is one of the top three priorities. “Executive compensation is out of control. The increase in pay over the last ten years is not in correlation with company performance. Compensation committee members must be held accountable,” one US pension fund professional stated, according to the release.

Investors also said they want to see better boards, ISS said. In addition to formal attributes of independence and strong nominating and director election processes, investors stress board accountability and responsiveness to shareholders.

In addition, investors in most markets studied cited financial reporting as one of the top three priorities, and seven in ten investors said more generally that reliable and trusted disclosure was one of the corporate governance improvements they most want to see.

Randall Hancock, ISS’ executive vice president and general manager of global research, said in the release, “Nine out of ten investors view corporate governance as important today, with more than six out of ten saying that it will increasingly become even more important for their firm over the next three years.”

However, a common challenge faced by all institutional investors is measuring the value of their corporate governance activities. Although almost seven in ten investors believe that corporate governance offers value, 81% said that they do not yet have metrics in place to assess the specific value of their corporate governance activities.

In spite of this, investors see advantages to corporate governance.   Almost 30% of institutional investors indicated that corporate governance offers their firm a competitive advantage and almost 40% said that the most significant advantage of corporate governance is enhanced shareholder returns.

The study can be downloaded from here .