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Jul 28, 2016

Awards Corner: Who's judging the Corporate Governance Awards?

Donna Anderson at T Rowe Price has seen various modes of shareholder engagement by portfolio companies and says what issuers do with feedback they receive is critical

Donna Anderson considers herself lucky to have a career focused on analyzing the financial disclosures and governance practices of the portfolio companies the firm she works for owns in the era of what she calls the ‘governance industrial complex.’ 

An equities analyst by training, she joined Invesco (known as Aim Investments at the time) in 1998 and soon became director of research for equities. She likens the role to being a chief operating officer, where her responsibilities consisted primarily of managing the investment department’s operations. One aspect of that was reviewing portfolio companies’ proxy statements – a job nobody else wanted at the time.

‘Analysts still look at the same things they always did. In my case, it’s been very fortunate timing because the era I’ve been doing this in has [been one] of engagement and significant improvement in board quality and disclosures, and a significant increase in interest among our clients in governance matters and extra-financial factors,’ says Anderson, who manages global corporate governance for T Rowe Price Associates.

Most equities analysts decide to focus on corporate governance after a portfolio company has burned their investment firm. ‘Once you’ve been through a serious loss of shareholder value, or bad deals, or self-dealing on the part of management, that’s when you get very interested in governance,’ she says. In her case, Invesco experienced an enormous dilution of shareholder interest and value destruction over a period of years. It took two years to get enough votes to be able to jettison the classified board, but by then the company was a shell of what it had been and it was too late, she recalls.

‘That was a massive learning experience and heightened my interest in more carefully monitoring proxies,’ she says.

And after the Sarbanes-Oxley Act took effect in 2002, companies’ financial disclosures began to be subjected to much closer scrutiny. The focus on whether board members were independent or not and the cross relationships between directors and senior executives at companies became more important and that information became available to investors for the first time. Working in Houston at the time, Anderson recalls having a front row view of Enron and witnessing the significant impact the company’s implosion had on the local community.  ‘It was a time when you could really feel that [regulatory] changes were coming,’ she says.

After nine years at Invesco she was looking for something different—a position that would enable her to become more of a specialist and have an opportunity to develop deeper expertise in a particular area of investing. She found that opportunity at T Rowe Price, which she joined in 2007 in a newly created role as a governance specialist in the firm’s investment division. In that role, she leads the policy-formation process for proxy voting, coordinates the investment firm’s engagement efforts with portfolio companies, and chairs the proxy committee.

The most significant event for corporate governance in the US market, she believes, has been the advisory vote on executive compensation plans that shareholders started to exercise in 2011, as mandated by the Dodd-Frank Act. That was accompanied by numerous changes in disclosures about executive pay provisions and amounts. Perhaps most importantly, say on pay launched the current era of engagement and dialogue between companies and their shareholders. Five years later, though, she no longer thinks that executive compensation is still the starting point of engagement conversations. Engagement has evolved into something much broader and it’s also become more company-specific.

After meeting with hundreds of companies over the years, she has come to recognize that engagement means something different for each company and the objectives they’re trying to accomplish through it vary widely. She’s seen some companies whose aim is ‘to explain why we’re wrong about our view of them and [that want] to talk at us for an hour, hoping to make us see the light and stop opposing them,’ she says. Other issuers, however, appear to derive value from listening and instead of going into a meeting with an agenda bring lots of questions to the discussion. Her experience and insights from the investor perspective have been a beneficial addition to the judging panel for the Corporate Governance Awards, and this will be her second year as a judge.  

But for Anderson, what’s most critical is what a company does with the feedback it gets from its investors and what kind of process they have for managing multiple kinds of feedback and sharing it with the board of directors. 

‘I’m less interested in statistics. A lot of companies are reporting what percent of their shareholder base they reach out to or how many shareholder meetings [they] had,’ she says. She was impressed by one company that included a list of topics its representatives discussed with investors, calling it ‘a new level of transparency I hadn’t seen before.’