GLOBAL - Investors and issuers are separated by a gulf when it comes to engagement, according to a study by the Investor Responsibility Research Center Institute (IRRC) and Institutional Shareholder Services (ISS).

While the 'The State of Engagement Between US Corporations and Shareholders' report revealed a high level of engagement between issuers and investors, there is a disconnect in basic areas such as the time frame of engagement, the definition of a successful engagement and, by implication, what 'engagement' itself means.

Approximately 87% of issuers, 70% of asset managers and 62% of asset owners reported at least one engagement in the past year. But asset owners, asset investors and issuers do not always agree on what constitutes successful engagement.

While all three groups believed constructive dialogue on a specific issue was a success, issuers were more likely than investors to think that establishment of a contentious dialogue was a success.

An even bigger difference was that about three-quarters of asset managers and asset owners defined either additional corporate disclosures and/or changes in policies as a success, while only about a third of issuers agreed.

Among investors, engagement is either a priority or a non-event. A bi-modal or 'barbell' distribution was evident, with 28% of asset owners and 34% of asset managers reporting engagements with more than 10 companies.

On the other hand, about 45% of asset owners and 43% of asset managers indicated they did not initiate any engagement activity whatsoever.

Marc Goldstein, head of research engagement for ISS, said: "The days of the 'Wall Street walk' are largely over. Investors often are unwilling or unable to simply sell shares when concerns arise about how a company is managed.

"Instead, investors will engage with executives or the board to try to bring about change. The advent of say-on-pay votes and the increased adoption of majority voting for directors have made annual shareholder meetings more consequential.

"In addition, the financial crisis continues to be a stern reminder of the consequences of poor governance and lax oversight."

The report also found that, despite the headlines that result from high-profile conflicts between issuers and investors, the vast majority of engagements between issuers and investors are never made public.

About 80% of issuers said most engagements remain private, as did 72% of asset owners and 62% of asset managers.

Previously, routine engagement referred to quarterly discussions about earnings and corporate strategy that occurred in company-designed forums such as conference calls and analyst meetings.

Today, engagement has become a year-round exercise involving dialogue on topics such as executive compensation, boardroom independence and sustainability.

The full report can be downloaded here.
 

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