Welcome to the Boardroom Governance Podcast. I’m your host, Evan Epstein. In this episode, I talk with Kris Pederson and Jamie Smith from the EY Americas Center for Board Matters. Kris is the Center’s Leader and Jamie focuses on Investor Outreach and is a Corporate Governance Specialist. Kris is a seasoned professional with 30 years of management consulting, auditing, financial analysis, and corporate board experience. She currently focuses on the board agenda, including the board’s role in strategy definition, disruptive innovation, board performance and culture, and long-term value/ESG. Jamie has a deep background in research related to corporate governance. She has focused on corporate governance since 2003, and has presented on corporate governance issues to corporate boards and a variety of companies and organizations. In this podcast, we talk about four takeaways from the 2022 proxy season including ESG shareholder proposals, Climate risk/energy transition, DEI & corporate political responsibility. We also address the increasing focus on the director’s role and boardroom diversity trends, the impact of the new universal proxy rules, shareholder engagement and shareholder activism. If you like this show, please consider subscribing, leaving a review or sharing this podcast on social media. You can find all the show notes on the website boardroom-governance.com and please feel free to subscribe to the Boardroom Governance Newsletter at evanepstein.substack.com
0:00 -- Intro.
1:40 -- Start of interview.
2:20 -- Kris' "origin story".
5:20 -- Jamie's "origin story".
7:30 -- About the EY Americas Center for Board Matters. It has three mandates:
10:19 -- Deep dive into their article "Four key takeaways from the 2022 proxy season."
10:58 -- On E&S Shareholder Proposals. "While there were more proposals in these categories, support for them became more targeted."
14:34 -- Focus on climate risk/energy transition, DEI and corporate political responsibility.
17:07 -- On boardroom diversity trends (including legal challenges to SB-826 and AB-979 in California and the Nasdaq Diversity Rules). "Today, 1/4 of the Fortune 100 directors is racially diverse and 1/3 is gender diverse; 61% of SP 1500 companies have 3 or more women on boards (up from 28% in 2018, that's a 30 point increase in three years)." "We have seen tremendous progress on all aspects of board diversity."
19:37 -- Support for directors remained stable despite signals that opposition would increase, with average votes against S&P 500 directors inching up to 4.2% compared with 3.9% over the same time period in 2021. "This year average voting opposition for nominating and governance chairs at S&P 500 companies was 8.2%, up from 4.6% in 2017. Similarly, average voting opposition for compensation committee chairs at S&P 500 companies was 7.3%, up from 3.8% over the same period. In addition, opposition to independent board leaders (i.e., independent chair, lead or presiding director) rose to 7.0% from 4.3%."
"The stakes for directors are really going up, and that's including around ESG matters." "Overall trends we think are pointing to director votes as a lever of change that investors may be more inclined to use going forward to express their views and accelerate their stewardship goals."
23:28 -- On investor pressure and pending SEC regulations (on climate change). "All of this is a wake-up call for directors."
27:00 -- On adding ESG expertise in the board. "I think it's critical for companies with board oversight to think about materiality." "Materiality assessments and matrices have been a good outcome of the ESG dialogue."
29:34 -- On institutional investors, stakeholders and the "disconnect" with the Anti-ESG political push-back.
36:03 -- On the new Universal Proxy Rules for Director Elections.
38:51 -- On shareholder engagement. "We really see investor engagement as a vital tool for companies to understand their key shareholders' perspectives on the company's governance and its strategy and also an opportunity to enhance the company's communication and deepen those relationships."
42:57 -- On shareholder activism. "We counsel boards to run different programs to think like an activist." "Companies need to be smart about what drives their own TSR." "Activists will often look at the board, to bring different dissidents and/or target individual directors." "There is a deep scrutiny around the E&S agenda areas."
45:51 -- On recommendations for directors in these volatile times, and how to increase the board’s impact in volatile times. "It's important to have a framework in place grounded in the company's purpose and its values so that it's ready in terms of how they are going to make decisions, what issues they are going to weigh-on, what stakeholders they need to think about, and what constituencies they are hearing from."
49:28 -- On boards adding value (strategy and innovation).
51:53 - What are the 1-3 books that have greatly influenced your life:
Kris:
Jamie:
53:30 - Who were your mentors, and what did you learn from them?
55:16 - Are there any quotes you think of often or live your life by?
56:28 - An unusual habit or an absurd thing that they love:
57:41 - The living person they most admire:
Kris Pederson is the EY Americas Center for Board Matters Leader. Jamie Smith is the EY Americas Center for Board Matters Investor Outreach and Corporate Governance Specialist.
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Twitter: @evanepstein
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Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License