What's ahead for boards.

• Author: Chase, Scott
• Position: Q&A: BOARD THOUGHT LEADERSHIP SECTION

Since Directors & Boards was founded in 1976, our mission has been to "see around corners" and help directors provide the best possible service to their shareholders. To achieve this, this journal has been "peer-to-peer" platform for dialog linking top directors with top advisors and service providers. Our writers are experts anxious to share experience, perspective, interpretation and wisdom with our readers.

With this issue, we introduce "What's Ahead for Boards," a compilation of thought leadership advisories from prominent market leaders serving specific director/board/management needs. You'll find Q&As with experts from Pay Governance, The Hay Group, Diligent, Inc. and K2 Intelligence. Each interview features a different take on what you as directors should be thinking about in the year ahead.

You'll also find this special section online at our newly redesigned website (www.directorsandboards. com), and we'll be hosting a webinar focused on the topic of what board members will have on their agendas for 2016.

Next year Directors & Boards celebrates 40 years of continuous publication and service to public and private company directors. It's been an exciting journey with no shortage of topics to discuss, laws to decipher, actions to decode. Certain topics always remain in the forefront--CEO succession planning, the board's role in defining risk, compensation and executive pay issues, corporate social responsibility, sustainability, director and executive liability, term and age limits--the list goes on and on for management and boards.

We're glad that you've been along for this journey toward governance excellence!

PAY GOVERNANCE LLC: ENVIRONMENTAL AND SOCIAL ISSUES HITTING THE BOARDROOM

Directors & Boards: Jon, Pay Governance tracks shareholder proposals on environmental and social issues. Why does Pay Governance, a firm that is known primarily for executive compensation consulting, track such proposals?

Jon Weinstein: We started tracking the proposals because our clients sometimes ask us for assistance when an activist investor submits such a proposal for vote at an annual meeting. Sometimes these proposals request that companies implement environmental and social metrics into executive incentive plans, so it is an important issue for us to monitor.

D&B: What trends are you seeing in these types of shareholder proposals?

JW: In the aggregate, environmental and social proposals have become the most common shareholder proposals, representing a third of all shareholder proposals in 2014. The most common social proposals in 2014 requested additional reporting or an outright prohibition on political and lobbying spending, and the most common environmental proposals sought reporting on greenhouse gas emissions and company sustainability. While few proposals have won majority support thus far, average levels of support for certain proposals are now at or above about 30 percent, including proposals relating to corporate diversity policies, reporting on political contributions, and reporting on company sustainability.

D&B: What influence do proxy advisors have on environmental and social shareholder proposals?

JW: Based on our research of proxy advisor ISS, proxy advisors appear to influence about 20% to 25% of the vote on these shareholder proposals, which is slightly lower than their 30% influence on annual advisory say-on-pay votes. However, what is most interesting about ISS's vote recommendations is that the proxy advisor often recommends for proposals seeking additional reporting on environmental and social issues, but against proposals calling for restrictions on companies' operations. It appears that the organization is attempting to balance institutional shareholders' fiduciary imperatives with a desire to encourage social and environmental change through additional disclosure. We note that ISS does not use the same nuanced approach in other areas, such as compensation, where ISS clearly seeks to go beyond additional transparency by attempting to influence the design and implementation of company programs.

D&B: How have these proposals, or increased investor/corporate interest in environmental sustainability and social responsibility more generally, influence executive compensation program design?

JW: A relatively rare type of shareholder environmental and social proposal requests that corporate issuers implement environmental sustainability or social criteria as a performance metric for senior executive compensation programs. These proposals have not fared well, with ISS recommending against all 11 of such proposals in the past five years, and only about six or seven percent of shareholders supporting such proposals. There are a number...