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Investor-savvy boards need board-savvy investors

 


Pensions & Investments | October 12, 2016


Pensions & Investments published a bylined article by Russell Reynolds Associates' Anthony Goodman and Jack O'Kelley III titled, "Investor-savvy boards need board-savvy investors." The piece looks at the relationship between institutional investors and corporate boards. The article is excerpted below.

Institutional investors, including pension funds, and the corporate boards they elect have much in common. They have fiduciary responsibilities. They have a strong sense of stewardship. And they are both continuously being urged to take a long-term view, despite compensation structures that sometimes incentivize short-term results.

For all the commonalities, non-executive corporate board directors have only recently started to engage directly with long-term institutional investors. Yet in our meetings with institutional investors and pension funds, it is clear that a willingness by board directors to meet with them, when requested, is often taken as a proxy for the presumed quality of the board.

Institutional investors assess the willingness of boards to engage with shareholders as a signal of board effectiveness and a strong board culture. Investors want boards to be open to building a relationship that allows for appropriate dialogue with the right pace and timing.

Investors want to know how the board is involved in developing strategy and the chief executive officer succession process. Investors view succession as a significant risk factor; strong long-term and emergency-succession planning processes are therefore important risk mitigation responsibilities of the board. They also expect the board to defend their decisions on executive compensation, not the executives themselves.

Investors are clear in their desire to better understand how boards evaluate and improve their own effectiveness. Many see a robust evaluation process as a good indicator of strong corporate governance.

To read the full article, click here.

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Investor-savvy boards need board-savvy investors