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ESG Watch: Investor Expectations & Engagement During the COVID-19 Crisis
MAY 12, 2020
A great deal of attention has been paid to how companies are navigating the COVID-19 pandemic, yet there has been little focus on investor expectations and engagement with companies during this time.
In this ESG Watch webcast, a panel of experts discussed investor expectations and engagement during the COVID-19 crisis and beyond. A few of the key takeaways included:
- Impact of pandemic on engagement and voting. During the current proxy season, investors are mostly focusing on 2019 performance when making voting decisions, but their views (and votes) can be affected by how the company is dealing with the pandemic today.
- Increased focus on ESG. Investors understand the unprecedented pressures that companies are facing, so they want to give companies flexibility when it comes to responding to the pandemic, but that is not lessening investors’ focus on ESG issues. Indeed, investors expect ESG issues – ranging from board composition and overboarding, to employee health and safety, to climate change -- to become even more important as we emerge from this pandemic.
- Executive Compensation. Now is probably not the time for companies to be focusing on adjusting 2020 performance metrics for executive compensation – it’s too early to do so when we don’t know the full impact of the pandemic, and it shows a focus on the C-Suite, not on operating the business. When it does come time to consider adjusting 2020 performance metrics, companies should not seek to eliminate the impact of the COVID-19 crisis: in 2021 say-on-pay votes investors may be looking at alignment of executive compensation not only with shareholder interests, but also with the interests with other stakeholders, including the broader employee population.
- 2020 Off-season Engagement. When preparing for the off-season engagement later this year, companies should look at what they’ve told their investors about their governance, succession planning, business continuity, sustainability, and citizenship efforts, etc. in the past – and use that as a baseline to have an open conversation with investors as to what worked, what didn’t, and what lessons were learned.
- Capital Allocation. Investors continue to look at decisions about capital allocation and shareholder rights plans on a case-by-case basis. There isn’t, by any means, blanket opposition to share repurchases or dividends, but there may be extra scrutiny for companies that accept government assistance.
- Virtual Meetings. While the forces leading to the use of virtual annual meetings (restrictions on business travel, concern about large-scale gatherings, increased digitization, and a focus on reducing carbon emissions) may lead companies to continue to use virtual annual shareholder meetings, companies may face some questions from investors if they too-tightly controlled the discussion at this year’s virtual or hybrid meetings.
Who Should Watch: Current and prospective board members of public and private companies; CEOs, general counsel, and other C-suite executives; corporate secretaries; investors; attorneys; and other corporate governance professionals.