- Institutional investors find corporate proxy statements too long, difficult to read, and lacking in clear and candid explanations of governance practices. The ideal proxy would be around 25 pages instead of the current average of 80 pages.
- The ideal proxy would provide concise summaries of board composition, executive compensation policies and their alignment with strategy and performance, and shareholder rights. It would explain decisions rather than just disclose information.
- Improving proxy disclosure could enhance shareholders' understanding of governance and their ability to make informed votes on issues like executive compensation.
Shareholders Are Dissatisfied with CEO Compensation and Disclosure--Proxies Are Too Long, Difficult to Read.
Only 38 percent of institutional investors believe that corporate disclosure about executive compensation is clear and easy to understand. “Shareholders want to know that the size, structure, and performance targets used in executive compensation contracts are appropriate,” says Professor David F. Larcker of the Stanford Graduate School of Business. “Our research shows that, across the board, they are dissatisfied with the quality and clarity of the information they receive about compensation in the corporate proxy. Even the largest, most sophisticated investors are unhappy.”
“With new pressure from activist investors and annual ‘Say on Pay’ (SOP) votes, it is more important than ever that companies explain to their shareholder base why the compensation packages they offer are appropriate in size and structure,” says Aaron Boyd, director of Governance Research at Equilar. “Investors are noticing the wide range in quality and clarity among various companies’ proxies. They want companies to communicate and explain, rather than simply disclose,” adds Ron Schneider, director of Corporate Governance Services at RR Donnelley Financial Services. “This represents a significant opportunity for many companies to improve the clarity of their proxies.”
In the fall of 2014, RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University surveyed 64 asset managers and owners with a combined $17 trillion in assets to understand how institutional investors use the information in corporate proxies.
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
Does your personality influence your potential for partnership?Anima & Atman
This is part of a multi-contributor publication, 'Legal leadership: a handbook for future success', a manual providing the essential tools to equip you to become a legal leader of the future.
https://www.ark-group.com/product/legal-leadership-handbook-future-success
Increasingly, law firms have used the device of merger as a road to quick growth. Without comprehensive planning the merger route is a hazardous undertaking.
Recently, shareholder groups have sued companies for inadequate disclosure in the annual proxy. They allege that companies provide insufficient disclosure to determine how to vote on “say on pay.” If a company follows SEC guidelines, why is this not sufficient?
Shareholders Are Dissatisfied with CEO Compensation and Disclosure--Proxies Are Too Long, Difficult to Read.
Only 38 percent of institutional investors believe that corporate disclosure about executive compensation is clear and easy to understand. “Shareholders want to know that the size, structure, and performance targets used in executive compensation contracts are appropriate,” says Professor David F. Larcker of the Stanford Graduate School of Business. “Our research shows that, across the board, they are dissatisfied with the quality and clarity of the information they receive about compensation in the corporate proxy. Even the largest, most sophisticated investors are unhappy.”
“With new pressure from activist investors and annual ‘Say on Pay’ (SOP) votes, it is more important than ever that companies explain to their shareholder base why the compensation packages they offer are appropriate in size and structure,” says Aaron Boyd, director of Governance Research at Equilar. “Investors are noticing the wide range in quality and clarity among various companies’ proxies. They want companies to communicate and explain, rather than simply disclose,” adds Ron Schneider, director of Corporate Governance Services at RR Donnelley Financial Services. “This represents a significant opportunity for many companies to improve the clarity of their proxies.”
In the fall of 2014, RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University surveyed 64 asset managers and owners with a combined $17 trillion in assets to understand how institutional investors use the information in corporate proxies.
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
Does your personality influence your potential for partnership?Anima & Atman
This is part of a multi-contributor publication, 'Legal leadership: a handbook for future success', a manual providing the essential tools to equip you to become a legal leader of the future.
https://www.ark-group.com/product/legal-leadership-handbook-future-success
Increasingly, law firms have used the device of merger as a road to quick growth. Without comprehensive planning the merger route is a hazardous undertaking.
Recently, shareholder groups have sued companies for inadequate disclosure in the annual proxy. They allege that companies provide insufficient disclosure to determine how to vote on “say on pay.” If a company follows SEC guidelines, why is this not sufficient?
This year’s mandatory Say-on-Pay (SOP) brought new challenges for issuers. Not only did the pace of failed plans accelerate, but last year’s votes proved to be a poor indicator of how companies’ plans would fare this season. This report, which will be updated at the conclusion of the calendar year, will point out some high-level trends in the voting data for companies with low SOP votes so far this year.
Although receiving at least 50% support on SOP is the primary goal for issuers, in many cases the institutional investor community will apply heightened scrutiny to compensation plans that received “significant” opposition. Thus, the data set we reviewed in this report—shown in Appendix A—covers plans that received less than 70% support. Following our analysis of these data is a brief section on guidance for issuers, both how to recover from a failed SOP vote in 2012 and how to prepare for 2013.
Like the rest of the financial services industry, insurers are subject to increasingly complex and prescriptive regulations and standards. In the year ahead, insurers will need to focus on the new U.S.Department of Labor fiduciary standard, which is likely to have a significant effect on how insurance products are sold. Moreover, global developments, especially those related to the developing International Capital Standard, will require insurers to closely monitor – and ideally contribute to – official discussions about how globally active insurers should manage capital
FTI Consulting publie cette semaine une étude globale sur le thème de l’activisme actionnarial, disponible en pièce jointe de ce message.
FTI Consulting a interrogé plus de 100 investisseurs institutionnels, représentant collectivement plus de 1 700 milliards de dollars d’actifs sous gestion, sur leur perception des campagnes activistes.
Cette étude démontre que les investisseurs institutionnels sont de plus en plus favorables aux activistes, et qu’ils soutiennent plus facilement la nomination d’administrateurs indépendants au sein des conseils d'administration.
Plus de la moitié des sociétés de gestion interrogées a indiqué qu'au moins 15% des sociétés actuellement présentes dans leur portefeuille « pourraient bénéficier » d'une situation activiste. Considérant que les activistes ciblent publiquement, ou non, des centaines d'entreprises par an, ce ratio confirme l’ampleur du mouvement. La tendance actuelle devrait se poursuivre.
D’autre part, si les entreprises ont une meilleure approche et une meilleure gestion des campagnes activistes, l’enquête menée par FTI Consulting démontre que leur efficacité peut être encore augmentée. La condition préalable est de reconnaître que les investisseurs institutionnels soutiennent alors un «changement» stratégique de l’entreprise sans pour autant s’intéresser aux moyens d’y parvenir.
FTI Consulting peut ainsi contribuer à élaborer une communication transparente avec les investisseurs, mettant en valeur les changements entrepris par la société et démontrant la création de valeur à long terme, et ainsi se défendre efficacement contre les fonds activistes.
La division Strategic Communications de FTI Consulting est l'une des plus réputées au monde, avec plus de 25 ans d'expérience dans le conseil auprès des équipes dirigeantes dans le cadre de situations sensibles. Pour ses clients, FTI active les leviers de communications pour protéger et améliorer réputation et valeur d'entreprise.
N'hésitez pas à nous contacter pour plus d'informations.
L'équipe FTI Consulting
Keys to extract value from the data analytics life cycleGrant Thornton LLP
Regulatory mandates driving transparency and financial objectives requiring accurate understanding of customer needs have heightened the importance of data analytics to unprecedented levels making it a critical element of doing business.
The ES&G Accountability Forum (2013) provided participants and panelists with an opportunity to examine the question of how information (both financial and non-financial) can best be provided in a form that is useful to decision makers that are affected by, or have an affect on Canada’s companies.
This document captures key points made by panelists, their answers to questions posed, and the Forum’s participants’ table discussions. It is organized around each panel: investors, companies, evaluation organizations. We hope to encourage all groups to consider the advice and comments discussed at the Forum, and to take action on the outstanding questions and issues to improve the state of ES&G disclosure, analysis and investing that are highlighted on pages 9 & 10.
This year on September 23, 2014 in Calgary, many of these unanswered questions will be addressed at the ES&G Forum 2014: "Non-financial performance... A missed opportunity?"
Building on the last two years' discussions, participants will hear how investors and businesses are implementing innovative methods to manage investor demand for ES&G information. To learn more about & register for this year's ES&G Forum, please visit: http://bit.ly/esg-forum-2014
Learn about how to do a qualitative and quantitative analysis to determine the gap in your market for micro and small business financing. Friedman Associates has developed a unique methodology in this area.
After the acquisition: 5 steps to manage the tax processGrant Thornton LLP
A detailed plan is critical to accomplishing all the tax-related tasks that need to occur in the months after an M&A transaction closes. Your 100-day plan for managing the tax process should include five key steps.
Nearly 900 investors from 700 VC firms responded to the mid-2016 survey covering Deal Sourcing, Investment Decisions, Valuations, Deal Structures, Post-Investment Value Adds, Exits, Org Structures of VCs, LP Relationships.
This document describes the results.
This year’s mandatory Say-on-Pay (SOP) brought new challenges for issuers. Not only did the pace of failed plans accelerate, but last year’s votes proved to be a poor indicator of how companies’ plans would fare this season. This report, which will be updated at the conclusion of the calendar year, will point out some high-level trends in the voting data for companies with low SOP votes so far this year.
Although receiving at least 50% support on SOP is the primary goal for issuers, in many cases the institutional investor community will apply heightened scrutiny to compensation plans that received “significant” opposition. Thus, the data set we reviewed in this report—shown in Appendix A—covers plans that received less than 70% support. Following our analysis of these data is a brief section on guidance for issuers, both how to recover from a failed SOP vote in 2012 and how to prepare for 2013.
Like the rest of the financial services industry, insurers are subject to increasingly complex and prescriptive regulations and standards. In the year ahead, insurers will need to focus on the new U.S.Department of Labor fiduciary standard, which is likely to have a significant effect on how insurance products are sold. Moreover, global developments, especially those related to the developing International Capital Standard, will require insurers to closely monitor – and ideally contribute to – official discussions about how globally active insurers should manage capital
FTI Consulting publie cette semaine une étude globale sur le thème de l’activisme actionnarial, disponible en pièce jointe de ce message.
FTI Consulting a interrogé plus de 100 investisseurs institutionnels, représentant collectivement plus de 1 700 milliards de dollars d’actifs sous gestion, sur leur perception des campagnes activistes.
Cette étude démontre que les investisseurs institutionnels sont de plus en plus favorables aux activistes, et qu’ils soutiennent plus facilement la nomination d’administrateurs indépendants au sein des conseils d'administration.
Plus de la moitié des sociétés de gestion interrogées a indiqué qu'au moins 15% des sociétés actuellement présentes dans leur portefeuille « pourraient bénéficier » d'une situation activiste. Considérant que les activistes ciblent publiquement, ou non, des centaines d'entreprises par an, ce ratio confirme l’ampleur du mouvement. La tendance actuelle devrait se poursuivre.
D’autre part, si les entreprises ont une meilleure approche et une meilleure gestion des campagnes activistes, l’enquête menée par FTI Consulting démontre que leur efficacité peut être encore augmentée. La condition préalable est de reconnaître que les investisseurs institutionnels soutiennent alors un «changement» stratégique de l’entreprise sans pour autant s’intéresser aux moyens d’y parvenir.
FTI Consulting peut ainsi contribuer à élaborer une communication transparente avec les investisseurs, mettant en valeur les changements entrepris par la société et démontrant la création de valeur à long terme, et ainsi se défendre efficacement contre les fonds activistes.
La division Strategic Communications de FTI Consulting est l'une des plus réputées au monde, avec plus de 25 ans d'expérience dans le conseil auprès des équipes dirigeantes dans le cadre de situations sensibles. Pour ses clients, FTI active les leviers de communications pour protéger et améliorer réputation et valeur d'entreprise.
N'hésitez pas à nous contacter pour plus d'informations.
L'équipe FTI Consulting
Keys to extract value from the data analytics life cycleGrant Thornton LLP
Regulatory mandates driving transparency and financial objectives requiring accurate understanding of customer needs have heightened the importance of data analytics to unprecedented levels making it a critical element of doing business.
The ES&G Accountability Forum (2013) provided participants and panelists with an opportunity to examine the question of how information (both financial and non-financial) can best be provided in a form that is useful to decision makers that are affected by, or have an affect on Canada’s companies.
This document captures key points made by panelists, their answers to questions posed, and the Forum’s participants’ table discussions. It is organized around each panel: investors, companies, evaluation organizations. We hope to encourage all groups to consider the advice and comments discussed at the Forum, and to take action on the outstanding questions and issues to improve the state of ES&G disclosure, analysis and investing that are highlighted on pages 9 & 10.
This year on September 23, 2014 in Calgary, many of these unanswered questions will be addressed at the ES&G Forum 2014: "Non-financial performance... A missed opportunity?"
Building on the last two years' discussions, participants will hear how investors and businesses are implementing innovative methods to manage investor demand for ES&G information. To learn more about & register for this year's ES&G Forum, please visit: http://bit.ly/esg-forum-2014
Learn about how to do a qualitative and quantitative analysis to determine the gap in your market for micro and small business financing. Friedman Associates has developed a unique methodology in this area.
After the acquisition: 5 steps to manage the tax processGrant Thornton LLP
A detailed plan is critical to accomplishing all the tax-related tasks that need to occur in the months after an M&A transaction closes. Your 100-day plan for managing the tax process should include five key steps.
Nearly 900 investors from 700 VC firms responded to the mid-2016 survey covering Deal Sourcing, Investment Decisions, Valuations, Deal Structures, Post-Investment Value Adds, Exits, Org Structures of VCs, LP Relationships.
This document describes the results.
Certified Organic Cold Pressed 100% Pure Argan Oil is the perfect for all skin and hair types.
Make sure to buy only 100% pure certified organic Argan oil to be sure that you are buying a product that does not contain any harmful chemicals.
By David F. Larcker, Brendan Sheehan, and Brian Tayan
September 1, 2016, Stanford Corporate Governance Initiative, and Stanford Rock Center for Corporate Governance
Discuss in detail the stakeholder approach with 300-350 wordswitbuffydtesurina
Discuss in detail the stakeholder approach with 300-350 words
with min 2 APA format citations
and 2 responses to the classmates post around 150-200 words each
Classmate Dharmagiri Post -1
Stakeholder Approach
It used to be believed that the organization's essential objective is or should boost the interests of the investors. In any case, more issues are progressively raised concerning stakeholder control. Accordingly, the Stakeholder approach these days is by all accounts an elective method for corporate government these days. This implies chiefs of the organization ought to consider more on different Stakeholder bunches rather than simply focused on financiers interests. It would encourage chiefs to take progressively significant consultation on their choices as the investor is never again the main factor they have to offer the idea to, and this can stay away from transient benefit boost conduct to a huge degree.
The Interest of the Company
As a matter of first importance, it is basic to think about whether the enthusiasm of the organization is that of the stakeholders. Despite discussion has proceeded on the enthusiasm of the organization, because of the partition of corporate character, it is clear that these two ideas would not be vague.
Stakeholder Theory
Stakeholder hypothesis was first raised by R. Edward Freeman as an absolute opposite to the hypothesis that chiefs of the organization is just responsible to the investors. Stakeholders incorporate representatives, suppliers of acknowledge, (for example, banks and money related foundations), providers, clients, nearby set-ups, natural gatherings and the government and their interests out to be assessed by the executives of the organization. As indicated by Freeman, every Stakeholder has an option to be treated as finishes to only a method or an instrument. At the end of the day, every one of the Stakeholders interests ought to be considered by executives of organization, regardless of whether in certain conditions where it may conflict with the transient ideal estimation of the investors.
The Superiority of Stakeholder Approach
Besides, it would accommodate the connection between the non-investor gatherings and the organization. Take the general population representatives for instance, seeing them as an organization instead of a methods would eventually make a progressively agreeable and beneficial connection between the workers and the organization, it is fundamental for organizations to have qualified and well-persuaded workers to endure and to succeed particularly in the escalated focused world these days.
Thirdly, the advancement of an organization must incorporate the nearby networks and condition. Accepting them as Stakeholders would maintain a strategic distance from acquiring a transient benefit to their detriment, which thusly will be hindering to the long haul enthusiasm of the organization. In addition, outside guidelines like natural insurance principles mirro ...
This case examines seven commonly accepted myths about corporate governance. How can we expect managerial behavior and firm performance to improve, if practitioners continue to rely on myths rather than facts to guide their decisions?
Internal.docRunning head Accounting information 1Acco.docxmariuse18nolet
Internal.doc
Running head: Accounting information
1
Accounting information
2
Accounting information
Student Name
University Name
Picket, n.d. defines internal controls as mechanisms to ensure objectives are achieved. Good controls encourage efficiency, compliance with laws and regulations, sound information, and seek to eliminate fraud and abuse. Internal control is also a process designed to provide assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliability and internal and external reporting, and compliance with applicable laws and regulations and internal policies.
Everyone in the organization has some role to play in the organization’s internal control system. The board of directors is responsible for the company’s system of internal control and it sets appropriate policies on internal control and seek regular assurance to ensure that the system of internal control is effective in managing risks in the manner which it has approved. It is also the role of the management to implement board policies on risk and control and all the employees of an organization have some responsibility for internal control as part of their accountability for achieving objectives. Management also needs to review the effectiveness of internal control by forming its own view on effectiveness after due and careful enquiry based on the information and assurances provided to it.
A few examples of internal control activities are as follows: (1) Tracking of major agency achievements and comparing these to the plans, goals and established objectives by the management. (2) Establishing physical control to secure and safeguard vulnerable assets. (3) Use a variety of control activities in information processing. (4) There should be a proper execution of transactions by making sure they are authorized and executed only by persons
acting within the scope of their authority. (5) Segregate the key duties and responsibilities to reduce the risk of error or fraud. (6) Appropriate documentation of transactions and other
significant events and they should be readily available for examination. (7) Establish finance committee to spearhead planning and monitoring of financial activities and reporting. (8) Design an effective organizational structure that takes into account the culture of the organization which is critical for effective financial management. (9) Effective management controls which includes methods of financial planning and budgeting and reporting of actual results and follow-up of variances between budgeted and actual amounts.
There are two groups of users of accounting information: internal users and external users. The internal users are the company managers who use the accounting information to decide how to plan and control operations on a daily and long-term basis while the external users are the existing or the potential investors, creditors, analysts, financial advise.
Executives View Ideal Shareholder Base as Key to Increased Market Value
Companies that want to maximize their market value would do well to pay attention to shareholder composition.
This study found that nearly all companies describe their ideal shareholder as having a long-term investment horizon, but that about half of companies’ shareholder base has a short- or medium-term horizon. As a result, the authors find, most companies see significant upside to managing their shareholder base, and senior leaders spend considerable time meeting with current and prospective investors.
“More than three-quarters of companies in our survey see significant stock market benefits from managing their shareholder base,” says Anne Beyer, associate professor of accounting at Stanford Graduate School of Business (GSB) and coauthor of the study. “Companies believe that if they can identify and attract the right shareholder base, they will be able to increase the price of their stock and decrease its volatility.”
In fact, this survey of 138 investor relations professionals at North American companies shows that 80% of companies believe their stock price would trade higher over a two- to three-year period if they could attract their ideal shareholder base. On average, companies estimate their stock would rise 15% and share price volatility would decrease 20%.
Read the full report!
New regulations have many executives wondering if their retirement plan is in compliance. Chances are you have a compliance violation. Patrick Shelton, Managing Member – Benefit Plans Plus, an affiliated company of Brown Smith Wallace, discusses retirement plan regulations and the critical importance of benchmarking.
Ten Myths of “Say On Pay”
Authors: Professor David F. Larcker, Stanford Graduate School of Business; Allan McCall, co-founder of Compensia and currently a PhD candidate at the Stanford GSB; Gaizka Ormazabal, Assistant Professor of Accounting at IESE Business School at the University of Navarra; and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford GSB.
Published: July 28, 2012
Say on pay is the practice of granting shareholders the right to vote on a company’s executive compensation program at the annual shareholder meeting. Under the Dodd-Frank Act of 2010, publicly traded companies in the U.S. are required to adopt say on pay. Advocates of this approach believe that say on pay will increase the accountability of corporate directors and lead to improved compensation practices.
In recent years, several myths have come to be accepted by the media and governance experts. These myths include the beliefs that:
There is only one approach to “say on pay”
All shareholders want the right to vote on executive compensation
Say on pay reduces executive compensation levels Pay plans are a failure if they do not receive high shareholder support
Say on pay improves “pay for performance”
Plain-vanilla equity awards are not performance-based
Discretionary bonuses should not be allowed
Shareholders should reject nonstandard benefits
Boards should adjust pay plans to satisfy dissatisfied shareholders
Proxy advisory firm recommendations for say on pay are correct
We examine each of these myths in the context of the research evidence and explain why they are incorrect.
We ask:
* Should the U.S. rescind the requirement for mandatory say on pay and return to a voluntary regime?
Read the attached Closer Look and let us know what you think!
To receive monthly alerts about the Closer Look series, please email the Stanford Corporate Governance Research Program at corpgovernance@gsb.stanford.edu. You can also follow more corporate governance
Corporate Governance a Balanced Scorecard approach with KPIs between BOD, Exe...Chris Rigatuso
This paper, from 2003, during my time at Oracle, was an early attempt to define metrics for inducing accountability between BOD, executives, and operating management of corporations. It's geared to large companies, but the lessons are broadly appreciable. It was published in CFO Reviews by Anderson Consulting, and other places. It predates the SOX Sarbanes Oxley laws that were a result of the Enron Scandal.
ESG Engagement Insights, a presentation by Nawar Alsaadi of best engagement practices of 30 asset managers, owners, pension funds, and non-profits around the world. (The work is derived from BlackRock & Ceres’ paper entitled Engagement in the 21st Century).
This report touches upon themes such as increasing complex reporting requirements, growing demand for transparency, the adoption of big data technology solutions, the management of environmental, social and governance (ESG) factors in private equity portfolio companies as well as the growing popularity of various private equity fund structures, and how this is set to change over the next 12 to 24 months.
The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important.
1. Topics, Issues, and Controversies in Corporate Governance and Leadership
S T A N F O R D C L O S E R L O O K S E R I E S
stanford closer look series 1
The Ideal Proxy Statement
introduction
Institutional investors are highly dissatisfied with
the quality of information they receive about cor-
porate governance policies and practices in the an-
nual proxy. Across the board, investors want proxies
to be shorter, more concise, more candid, and less
legal. According to a recent survey by RR Donnel-
ley, Equilar, and the Rock Center for Corporate
Governance at Stanford University, 55 percent of
investors believe that the typical proxy statement is
too long. Forty-eight percent believe that it is dif-
ficult to read and understand. Investors claim to
read only 32 percent of a typical proxy, on average.
They report that the ideal length of a proxy is 25
pages, compared with an actual average of 80 pages
among companies in the Russell 3000.1
The fundamental complaint about proxies is
rooted in a perception that companies are not com-
municating candidly with owners. Shareholders
want corporations to explain information rather
than disclose it. Investors view corporations as using
the proxy as a vehicle to meet disclosure obligations
without a willingness to provide information in a
format that is clear and understandable to a typi-
cal—or even sophisticated—owner.
The largest complaint involves executive com-
pensation and the inability of investors to read the
information that companies disclose and determine
whether senior management is paid appropriately.
According to the survey above, less than half (38
percent) of institutional investors believe that ex-
ecutive compensation is clearly and effectively
disclosed in the proxy. Responses are consistently
negative across all elements of compensation dis-
closure. Sixty-five percent say that the relation be-
tween compensation and risk is “not at all” clear.
By David F. Larcker and Brian Tayan
February 17, 2015
Forty-eight percent say that it is “not at all” clear
that the size of compensation is appropriate. For-
ty-three percent believe that it is “not at all” clear
whether performance-based compensation plans
are based on rigorous goals. Significant minorities
cannot determine whether the structure of execu-
tive compensation is appropriate (39 percent), can-
not understand the relation between compensation
and performance (25 percent), and cannot deter-
mine whether compensation is well-aligned with
shareholder interests (22 percent). Investors also
express considerable dissatisfaction with the disclo-
sure of potential payouts to executives under long-
term performance plans.
Inadequate disclosure negatively impacts the
voting process. Only half (54 percent) believe that
the proxy allows them to make an informed deci-
sion regarding “say on pay” (see Exhibit 1).
The ideal proxy
The challenge that corporations face is to find a
solution that satisfies investor demands for clarity
while at the same time satisfying numerous regula-
tory requirements for the disclosure of specific ele-
ments. Based on the feedback of major institutional
asset owners and asset managers, the ideal proxy
would include the following:
Context. Investors believe that proxies, as written
today, lack context. In the words of one investor:
“We’ve lost sight of what the proxy is for. It’s be-
come a catch-all for non-financial information.”
Investors want to know how the company’s gover-
nance choices are informed by its strategic goals, in
particular its choices relating to board composition,
shareholder rights, financial targets, performance
2. stanford closer look series 2
the ideal proxy statement
measurement, and executive compensation:
Contextualize it. I cannot recall reading a proxy
and walking away with a full appreciation of
the link between the pay structure, where the
company wants to go, and how it will get there.
Instead, it’s a bunch of discrete information that’s
disconnected and too long. It forces the reader to
fill in the blanks.
Investors want companies to avoid the use of boil-
erplate, legal, and compliance-oriented language
and instead to describe the context for corporate
decision making in simple and direct language.
Preferably, this information would come from the
independent chairman or lead director (~1 page in
length).
Investors cite Pfizer as a company that does a
notable job of summarizing governance informa-
tion in the proxy.
Board Composition. Investors want a better under-
standing of why each director is on the board and
how they contribute to the corporate strategy and
governance of the firm. This information could
take the form of a skills matrix that maps direc-
tor qualifications to the needs of the organization.
Shareholders would be able to make decisions
about director reelection based on their assessment
of the company’s performance in each of these ar-
eas. Investors also want to understand the process
for committee assignments, director evaluation,
and refreshing the board over time, including some
information about board succession planning.2
In
addition, the proxy should continue to summarize
the company’s ownership guidelines and provide a
table on director compensation and ownership lev-
els (~2 pages).
Investors cite The Coca-Cola Company as an
example of a company that does an exemplary job
describing director qualifications and the value they
add to the board.
Compensation. The compensation section of the
proxy could be improved through a more concise
presentation of data and clearer description of how
compensation is tied to long-term strategy, finan-
cial metrics, and risk. According to one investor,
the compensation section of the proxy would ben-
efit from context: “A big sticking point for us is that
we want to see better disclosure, not more disclo-
sure.” According to another, investors need better
information to help them determine whether pay
levels are appropriate: “Pay can be perfectly aligned
with performance, yet still be too high.” To improve
their understanding of these issues, investors would
like to see the following:
• The value of compensation granted, realized, and
realizable by named executives during the year.
• Comparable data among peers or industry aver-
ages.
• Metrics, targets, and weightings used to award
performance-based awards.
• The company’s actual performance relative to
targets.
• Outstanding awards and the conditions under
which they can be realized.
• A justification for discretionary payments.
• Ownership guidelines and ownership levels.
(~4 pages).
Investors cite Apple and ExxonMobil as two com-
panies that do a particularly good job framing and
discussing compensation practices.
Shareholder Rights. Investors want a concise sum-
mary of charter and bylaw provisions that spells out
their rights to influence the corporation, including
changes made in recent years and an explanation
of why those changes were made. They want plain-
language statements of company opposition to
shareholder-sponsored proposals, and an explana-
tion of the process the board will take in response
to shareholder engagement (~1 page, plus summary
discussion for each proposal).3
Ironically, the ideal proxy statement today in
many ways resembles proxy statements as written
over fifty years ago. Then, a typical proxy was less
than 10 pages in length, was simple in design and
language, and contained a specificity of disclosure
consistent with what investors are requesting to-
day.4
Regulatory requirements and investor demands
for information make a return to historical proxy
formats unlikely. Still, one approach that suggests
4. stanford closer look series 4
the ideal proxy statement
Exhibit 1 — Investor Perspective on Proxy Disclosure
To what extent do you agree with the following statement: “The typical proxy state-
ment is too long”?
To what extent do you agree with the following statement: “The typical proxy state-
ment is difficult to read and understand”?
0%
11%
34%
39%
16%
0% 20% 40% 60%
Strongly disagree
Disagree
Neither agree nor
disagree
Agree
Strongly agree
0%
16%
36%
33%
15%
0% 10% 20% 30% 40%
Strongly disagree
Disagree
Neither agree nor
disagree
Agree
Strongly agree
In general, do you believe that information about executive compensation is clearly
and effectively disclosed in proxy statements?
14%
48%
38%
0% 20% 40% 60%
Don't
know
No
Yes
5. stanford closer look series 5
the ideal proxy statement
Exhibit 1 — continued
On average, how clear and effective are proxy statements in helping you to under-
stand the following?
2%
4%
6%
2%
4%
5%
33%
48%
52%
59%
71%
73%
65%
48%
43%
39%
25%
22%
0% 20% 40% 60% 80% 100%
Relation between executive compensation and risk
Whether the size of the executive compensation
package is appropriate
Whether performance-based compensation plans are
based on rigorous goals
Whether the structure of the executive compensation
package is appropriate
Relation between executive compensation and
company performance
Alignment between executive compensation and
shareholder interests
Very Somewhat Not at all
On average, how clear and effective are proxy statements in helping you to under-
stand the following?
29%
15%
23%
65%
56%
62%
6%
29%
15%
0% 20% 40% 60% 80% 100%
Value of pay that an executive actually realized
during the year
Value of pay that an executive can currently realize
(i.e., by exercising vested equity awards)
Value of compensation granted during the year
Very Somewhat Not at all
6. stanford closer look series 6
the ideal proxy statement
Exhibit 1 — continued
Source: RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University, “2015 Investor Survey:
Deconstructing Proxies—What Matters to Investors” (2015).
On average, do you believe that current disclosure practices about the potential pay-
outs to executives under long-term performance plans are clear and effective?
In general, do you believe that the disclosure in the proxy statement allows your or-
ganization to make informed decisions regarding “Say on Pay”?
19%
56%
26%
0% 20% 40% 60%
Don't
know
No
Yes
25%
21%
54%
0% 20% 40% 60%
Don't
know
No
Yes
7. stanford closer look series 7
the ideal proxy statement
Exhibit 2 — Investor Use of Proxies for Voting and Investment Decisions
What three sections of a company’s proxy are you most likely to look at first? (pick
any three)
21%
3%
5%
7%
7%
14%
19%
24%
24%
24%
26%
38%
43%
45%
0% 20% 40% 60%
Other
Auditor selection and oversight
Grants of plan-based awards
Severance and change-in-control
benefits
Description of board committees
Description of risk oversight
CD&A discussion of annual
bonus/incentive
Director biographies
Description of shareholder
engagement
Summary at the beginning of the
CD&A (if included)
Director skills and qualifications
CD&A discussion of long-term
incentives/equity awards
The summary compensation table
A summary at the beginning of
the proxy (if included)
8. stanford closer look series 8
the ideal proxy statement
Exhibit 2 — continued
Which of the following sections of the proxy does your firm read and rely on to make
voting and investment decisions? (select all that apply)
29%
16%
3%
5%
5%
12%
10%
10%
7%
5%
17%
5%
14%
22%
29%
19%
26%
33%
19%
40%
17%
34%
14%
7%
12%
19%
22%
24%
28%
28%
33%
33%
33%
34%
36%
41%
43%
45%
48%
59%
59%
62%
62%
64%
0% 20% 40% 60% 80%
None of these
Other
Ratio of CEO/median employee pay
Political contributions
Ratio of CEO/named executive officer pay
CSR/sustainability profile
Clawbacks
Board evaluation process
Realized/realizable pay
Supporting statements to 14a-8 proposals
Succession planning (CEO and director)
Company opposition to 14a-8 proposals
Investor engagement
Peer group benchmarking
Risk oversight
Related-person transactions
Compensation philosophy
Shareholder rights/anti-takeover
Director nominee descriptions
Performance metrics
Director independence
Pay-for-performance alignment
Voting decision Investment decision
Source: RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University, “2015 Investor Survey:
Deconstructing Proxies—What Matters to Investors” (2015).