Monday, January 22, 2018

Shareholder engagement benefits both stakeholders and companies, panelists explain

By Amy Leisinger, J.D.

The role of investors in shareholder engagement with companies is growing and evolving, according to panelists at a joint SEC Division of Economic and Risk Analysis and NYU engagement conference. Institutional and activist investors are having an impact on managerial positions and general corporate governance, which serves to benefit both shareholder and companies themselves, they explained.

According to BlackRock Chief Legal Officer Matthew Mallow, while a company’s duty is ultimately to direct clients, decision making and engagement with companies must involve accurate representation of the interests of beneficial owners. BlackRock will follow client mandates, but it is important to consider the issues that are important to the real constituency, particularly retirement investors, he explained. When an issue reaches the voting level, BlackRock tries to be transparent and clear as to why it voted the way it did, but, on occasion, the more effective way to engage is an open conversation with the subject company’s executives and/or directors to address concerns before dealing in the formalities of proposals, proxies, and votes, Mallow stated. Over time, he expects closer relationships between shareholders and companies and an increase in the number of companies receptive to engagement efforts.

California State Teachers’ Retirement System portfolio manager Aeisha Mastagni agreed, noting that the system will try to engage with a company before making an official proposal. Direct dialogue is particularly important with regard to very complex issues, she said. CalSTRS stakeholders are getting more actively involved in questioning corporate positions on social and economic issues, according to Mastagni, and some beneficiaries feel stronger about certain issues than others. CalSTRS engagement plans are designed to address varying positions to the extent feasible, she said.

According to Society of Corporate Governance President and CEO Darla Stuckey, the future of the relationship between companies and their shareholders will be more active and more focused on long-term efforts and issue-specific discussions. Social purposes are becoming increasingly important to investors, and companies are becoming more responsive, she explained. The evolution of distributed ledger technology could lead to an even more direct relationship, Stuckey opined.

In closing remarks, SEC Commission Kara Stein agreed that harnessing technology and creating new tools and pathways for communication will be crucial to increasing shareholder engagement. Engagement is a two-way street, she stated. Companies can share policies and explain their positions, and shareholders can have their have voices heard; ultimately, engagement benefits both sides, she concluded.