NIRI and NACD Conference Recap
Hot Button Topics for Corporate Issuers
8 min. read
On Monday, we presented our bold and leading-edge research on “Profile of a Compounder” at the Annual National Investor Relations Institute Conference (NIRI) in San Francisco, which was a 3-day event focused on networking, thought leadership, and IR best practice. On Wednesday, we did a reprisal at the National Association of Corporate Directors (NACD) “Leading Minds of Governance and AI” Conference in Nashville.
Across both conferences, we heard consistent themes, where boards, executives, and investor relations professionals discussed hot button topics including AI, Activism, Shareholder Engagement, and Human Capital. Of note, many of these conversations ended with “and this is an ESG issue” — more on this later.
For today’s Thought Leadership, below is a recap of focus areas, key insights, and actionable recommendations.
Hot Button Topics for Corporate Issuers from NIRI and NACD
- Artificial Intelligence: AI is Accelerating Critical Decision Making Rather than Replacing, and “AI-Washing” is a Front-and-Center Topic for the SEC
- Board Matters: Cybersecurity, Activism, and the Universal Proxy… Oh My!
- ESG: All Roads Lead Back to ESG, Despite a “False Sense of Security” in the U.S.
- Buy-Side Insights: Engagement is a Constant Evolution
Artificial Intelligence
AI is Accelerating Critical Decision Making Rather than Replacing, and “AI-Washing” is a Front-and-Center Topic for the SEC
- Not surprisingly, it took less than a minute at both NIRI and NACD for AI to be mentioned in the opening sessions. As was identified in our Inaugural Artificial Intelligence Survey, the conversation around AI has focused on opportunity and risk, with most investors and corporates evaluating or starting to integrate it into activities.
- Guest speaker, SEC Commissioner Hester Peirce, shared the SEC will be increasingly focused on “AI-Washing”, where companies make misleading claims on the materiality of usage and impact of AI for the organization, including on earnings calls
- For companies, this is important to keep in mind, as the number of mentions on earnings calls identified in Corbin’s Artificial Intelligence Survey was up 37% sequentially, and 216% on an annual basis through Q1
- Companies embracing AI should develop a purpose for its usage (think North Star) and uphold AI as a trustworthy, safe, and responsible endeavor; maintaining such an environment starts with data protection and data privacy
- Good governance of AI includes defining goals and objectives, developing a values or ethics statement, and having defined roles and responsibilities for key personnel involved; reach out to Corbin for examples of such statements
- The majority of companies are in the piloting and proof-of-concept phase, which has not yet reached sufficient scale
- AI is bigger than the Audit Committee for the Board of Directors; companies are increasingly creating Technology Committees
- In line with our Artificial Intelligence Survey, IROs polled in attendance note mainly using AI for industry/peer monitoring at this time
- As a result of all the talk on AI, consider the following four questions for your company:
- Is there a common level of knowledge, expertise, and resources to govern AI efforts across the organization?
- Is management prepared, and are conversations happening in a more frequent and structured way?
- What metrics are in place to measure the effectiveness and impact of AI initiatives?
- How and at what level should capital be deployed toward these efforts?
Board Matters
Cybersecurity, Activism, and the Universal Proxy… Oh My!
For corporate directors, cybersecurity and activism remain key vulnerabilities for companies, and much discussion was devoted to how boards, executive teams, and IR leaders can proactively prepare for a potential future scenario.
Cybersecurity
- With the advent of AI, cybersecurity is taking on new form of business risk and companies need to understand the risk tolerance of the business
- For example, how long can a system be down before it is considered material?
- Make sure you have the right team and key personnel in place in the event of a cybersecurity threat
- For reference, a copy of the NACD Cyber Risk Handbook can be found here
Activism and the Universal Proxy
- There is a growing focus from investors on exit pay, making it the second most common reason for “against” votes from Institutional Shareholder Services (ISS) regarding management packages
- Investors are highly critical of compensation perceived as excessive, especially in cases of retirement or voluntary departure that go beyond standard contractual agreements
- Notably, ISS and Glass Lewis are supporting activist campaigns more than in past years
- Activist campaigns targeting sales, break-ups, or division spin-offs are increasing amid the higher-for-longer interest rate environment
- Activists urging target companies to merge, spin off units, or sell themselves grew to 49% of all campaigns last year versus the historical average of 42%1
- Universal proxy is not having a significant impact on the number of campaigns, contrary to initial perception
- When analyzing 2023 activist campaigns, reflecting the first full year the universal proxy rules came into effect, year-end figures demonstrate that activism activity, while still elevated versus 2020, changed little versus the prior year (60 U.S. activist campaigns where the dissident sought board representation compared to 61 campaigns in 2022)2
- That said, expect labor unions, such as was witnessed with Starbucks, to pressure companies leveraging the universal proxy
- Relevant board industry expertise is a prolific topic within activism, now more than ever
- This comes on the heels of the recent Southwest activist campaign where prominent activist Elliott Investment Management noted in a letter to the Company’s shareholders that the Board has, “Reinforced an insular culture and outdated thinking in the face of indisputable evidence that change is required. The Board includes no directors with external airline experience, and a majority of the independent directors were recruited by Executive Chairman Gary Kelly”
- According to our ongoing Inside The Buy-Side® research on ESG, related to the “G”, the top focus for investors is board composition with respect to diverse experience, followed by executive compensation that is aligned with shareholder interests
- It is not enough to share director bios and photos; companies should be keen on calling out board strengths, skills, and credentials, including but not limited to a skills and competency matrix; board messaging should be robust and consistent across all relevant channels
- LinkedIn is the professional network; we advise companies to ensure director profiles are accurate and up to date
- According to the Global Board Governance Survey, directors believe the following are most important when electing their peers: 1) diversity/skill of experience; 2) industry expertise; and 3) technological advancements
- Geographical diversity, while not yet a top focus, is increasing in value as directors with this trait bring global perspective and knowledge amid heightened geopolitical risk
- Companies should be reviewing vulnerabilities on a quarterly basis
- Source: Barclays
- Source: Mayer | Brown
ESG
All Roads Lead Back to ESG, Despite a “False Sense of Security” in the U.S.
Amongst a wide array of topics, it was notable the number of conversations ending with “and this is an ESG issue”. At Corbin, this comes as no surprise, as our latest research indicates over 90% of investors place at least some level of importance on ESG when making active investment decisions, both as a risk mitigating exercise and material business opportunity.
- There is regulatory burden with being a global company, and while ESG is highly politicized in the U.S., it is table stakes in Europe
- For example, the first round of the European Sustainability Reporting Standards (ESRS), a set of mandatory ESG reporting standards for the EU, have been effective since January 1st of this year
- Related, “double materiality” is a burgeoning concept used in European sustainability reporting that recognizes two dimensions of materiality, requiring companies to consider not only how sustainability issues affect their financial performance (financial materiality), but also how their activities impact the physical environment and society (environmental and social materiality)
- California continues to push the conversation; last year, the state enacted two climate disclosure laws (SB-253 and SB-261), applicable to both public and private entities that do business in the state and that meet certain annual revenue thresholds, requiring GHG (Scope 1, 2, and 3) disclosures by 2026
- For example, the first round of the European Sustainability Reporting Standards (ESRS), a set of mandatory ESG reporting standards for the EU, have been effective since January 1st of this year
- Boards should be aware of all the ESG goals that a company has publicly announced, the path to get there, and have a proactive plan with flexibility to adapt as we approach 2030 (it’s right around the corner!); companies must communicate consistently across channels
- Human capital remains top of mind:
- Succession remains in focus, with increased discussion about the next several levels of leadership beyond the C-suite; to that end, diversity remains an important consideration
- More directors believe they are prepared for strong talent recruitment and retention than management teams believe the Board is
Buy-Side Insights
Engagement is a Constant Evolution
Investor engagement and the evolution of the buy side took center stage for the final day at the NIRI Annual Conference.
- Wellington Corporate Access noted analysts are back in the office at least four days a week, and they have seen this trend at other investment firms
- Wellington mandates that if a company is a core holding or ancillary holding and management is coming to the office, their team must attend
- Wellington, Norges Bank, and Freestone Grove all highlighted the value of investor days (music to our ears)
- Investors continue to flock to ETFs, which now represent ~$9 trillion in AUM
- Several reasons for the inflow were highlighted, including tax benefits, transparency, and more optionality as they trade continuously during market hours; notably, active ETFs have grown to over $624B in AUM and are expected to continue to grow as mutual funds convert to ETFs to respond to investor needs
- According to an audience poll, 90% of IR professionals had never spoken with an active ETF manager; yet Morningstar Data reports there are 15 active managers that have reached or exceeded $1B or more in AUM, with TCW being one such firm
- Jennifer Grancio, TCW’s Global Head of Distribution, noted the firm is focused on creating ETFs that are in industries of growing economic importance, but underrepresented in indexes; she highlighted that portfolio managers are receptive and open to meetings with corporates
- Additional best practice considerations for companies:
- Appoint an institutional investor to the board and/or provide the opportunity for shareholder(s) to present to the board
- For additional insights on board engagement with shareholders, we recently guest appeared on Skadden’s Informed Board podcast: When and How Directors Should Engage with Investors
- Host an internal, one- or two-day strategy event with board and the senior leadership team to identify risks and blind spots
- Ensure management and IR emphasize cultivating relationships with index firms from a corporate governance perspective
- Appoint an institutional investor to the board and/or provide the opportunity for shareholder(s) to present to the board
In Closing
This past week was surely one for the books, jam-packed with insights, meaningful discussions, and familiar faces. It was a true pleasure seeing so many of you at our presentations — your presence and engagement made the events even more special. Should you wish to delve deeper into any of the topics discussed, please do not hesitate to reach out. That’s what we’re here for.
AI’s Impact on the Investment Process and Investor Relations
In March, we shared with you preliminary thought leadership on AI through a two-part series. We’re excited to now present the complete thesis in our Inaugural Artificial Intelligence Survey. This comprehensive report synthesizes our earlier research and provides interesting new perspectives.
Key Findings & Insights
- While AI adoption is in its infancy, there is interest and early-stage implementation in both investment processes and IR Functions; AI is becoming a topic of interest in investor meetings
- Investment community and corporate issuers have identified clear use cases and benefits to augmenting workflows, including synthesizing earnings and ESG data
- Common challenges dragging on adoption identified – namely novelty, privacy, and complexity
- AI governance protocols are in the early stages, though roughly one-third indicate firm- and company-level restrictions
- The intersection between AI and IR is coming into focus: IR professionals are actively upskilling and in conversation with IT departments
