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E-MailBenjamin Colton is Global Head of Asset Stewardship, and Holly Fetter is Vice President of Asset Stewardship at State Street Global Advisors. This post is based on their SSGA memorandum.
As stewards of near-permanent capital to thousands of public companies across the world, State Street Global Advisors focuses on risks and opportunities that may impact long-term value creation for our clients. We rely on the elected representatives of the companies in which we invest — the board of directors — to oversee these firms’ strategies. We expect effective independent board oversight of the material risks and opportunities to its business and operations. We believe that appropriate consideration of these risks and opportunities is an essential component of a firm’s long-term business strategy, and expect boards to actively oversee the management of this strategy.
This post provides guidance to our portfolio companies on how we evaluate the effectiveness of the board oversight of the risks and opportunities and should be read in conjunction with our Global Proxy Voting and Engagement Principles and applicable regional proxy voting and engagement guidelines It also outlines our approach to incorporating these perspectives into our voting and engagement.
When evaluating a board’s oversight of financially material risks and opportunities, we assess the
following factors, based on disclosures and engagements with directors.
Oversees Long-term Strategy
- Articulates the material risks and opportunities and how those risks and opportunities fit into
the firm’s long-term business strategy - Regularly assesses the effectiveness of the company’s long-term strategy, and management’s
execution of this strategy
For example, we leverage established frameworks, such as The Sustainability Accounting Standards Board (SASB) Materiality Map to inform our views on the materiality of environmental and social issues at a given company. We have also established the following priorities for proxyvoting and engagement: Effective Board Oversight; Climate Risk Management; Human Capital Management; and Diversity, Equity & Inclusion.
Demonstrates an Effective Oversight Process
- Describes which committee(s) have oversight over specific risks and opportunities, as well as
which topics are overseen and/or discussed at the full-board level - Includes risks and opportunities in board and/or committee agendas, and articulates how
often specific topics are discussed at the committee and/or full-board level - Utilizes KPIs or metrics to assess the effectiveness of risk management processes
- Engages with key stakeholders including employees and investors
Ensures Effective Leadership
- Holds management accountable for progress on relevant metrics and targets
- Integrates necessary skills and perspectives into the board nominating and executive hiring
processes, and provides training to directors and executives, including on topics material to
the company’s business or operations - Conducts a periodic effectiveness review
Ensures Disclosures of Material Information
- Ensures publication of relevant disclosures, including those regarding material topics
- For example, we expect companies to disclose against the four pillars of the Task Force
on Climate-related Financial Disclosures (TCFD) framework
- For example, we expect companies to disclose against the four pillars of the Task Force
Incorporating our Expectations for Effective Oversight Into our Proxy Voting and Engagement Practices
As responsible stewards, we believe in the importance of effective risk management and oversight of issues that are material to a company. To effectively assess the risk of our clients’ portfolios and the broader market, we expect our portfolio companies to manage risks and opportunities that are material and industry-specific and that have a demonstrated link to long-term value creation, and to provide high-quality disclosure of this process to shareholders.
Consistent with this perspective, we may seek to engage with our portfolio companies to better understand how their boards are overseeing risks and opportunities the company has deemed to be material to its business or operations. If we believe a company has failed to implement and communicate effective oversight of these risks, we may consider voting against the directors responsible.
Next Steps For Directors
We encourage directors to review our existing guidance, as well as our voting guidelines, all of which can be found on our website. We believe regular engagements with directors is an essential component of successful long-term partnerships with our portfolio companies. Please reach out to the Asset Stewardship team at [email protected] to request an engagement or share your ideas on effective board oversight.
