November 27, 2019

Corporate Compliance Insights – How ESG Trends Impact Corporate Governance and Compliance

By Marc Hodak

ESG concerns are increasingly impacting shareholder activism, in turn pressuring boards to engage with investors on these subjects. Farient Advisors’ Marc Hodak shares the way these trends will shape investor relations, corporate governance and compliance.

Corporate Compliance Insights: How has the investor ecosystem changed in recent years? What pressures now exist for companies that haven’t previously?

Marc Hodak: Historically, companies needed only to focus on the largest activist investors — those capable of mounting a credible takeover bid and displacing sitting directors. Today, the largest asset managers are also sophisticated in overseeing and shaping the governance of companies in which they are invested. Index funds cannot walk away from problem companies. Retirement plans cannot ignore the long-term impact of those companies on their retirees’ futures. Investors want to ensure that companies are doing the right thing for the long-term viability of the business and the societies in which they operate.

Recent research from Farient Advisors and our partners in the Global Governance and Executive Compensation Group (GECN Group) — a partnership of independent executive compensation firms serving clients in more than 30 countries — recently completed our 2019 Global Trends in Corporate Governance Series. In this year’s issue, our Farient/GECN Group team interviewed more than 25 investors covering four continents. The results of this survey tell us that if companies fail to listen to their investors or do not provide clear disclosures on the “what” and “how” of what they are doing, investors will exclude them from future funds in their portfolios, potentially impacting the marketability of their stock. In today’s corporate ecosystem, investors are escalating concerns quickly, engaging with management and the board and increasingly voting against directors when they feel their voices are not being heard.

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