How does board-shareholder engagement really work? Evidence from a survey of corporate officers and from disclosure data

Shareholder engagement plays an important role in corporate governance. In the last decade, investors have increasingly influenced business decisions and their activities have extended beyond the formal submission of shareholder resolutions for voting at annual meetings. On their part, directors and managers have kept an open channel of communication. Yet, much of board-shareholder engagement consists of private interactions and, as a result, very few details about it are reported. This Chapter sheds light on closed-door board-shareholder engagement with a survey of SEC-registered corporations. The survey was circulated among corporate secretaries, general counsel, and investor relations officers, and prompted 171 responses. We also review and analyze data on corporate-shareholder engagement from disclosures by Russell 3000 and S&P 500 companies. Among other things, our investigation found that shareholder engagement is more commonly practiced at large and mid-sized companies than smaller organizations. While engagement primarily occurs with large asset managers (including the Big Three) at large corporations, it is frequently used in somewhat confrontational ways, especially by hedge funds at smaller corporations. Engagement pertains to a wide array of topics, with emphasis on executives’ incentive plan design (including the use of ESG performance metrics), GHG emission and energy consumption reduction strategies, workforce diversity and pay equity, and political spending. We found that engagement is consequential, often leading to changes in corporate practices, withdrawal of shareholder proposals, changes in the proxy vote previously announced, and inclusion in the management slate of a director nominee proposed by the engaged shareholder.