The Changing Landscape of Corporate Governance Disclosure: Impact on Shareholder Voting
Director skills matrices, which present qualifications and expertise in image-based formats, are becoming increasingly more common in proxy statements. The percentage of firms disclosing these skills matrices grew from 5% in 2011 to 65% in 2021. What is the purpose of these matrices? Do they contain valuable information for investors or are just an opportunity for window-dressing?
Using data from all S&P1500 firms over the 2011–2021 period, Professors Becher and Lowry provide evidence that skills matrices are informative. Matrices decrease investors’ costs of evaluating directors up for re-election and diminish investors’ reliance on proxy advisory service companies. Specifically, the authors find that when there is disagreement between management and ISS, the presence of a skill matrix increases active voters’ propensity to come to a different conclusion from ISS by five percentage points.
Additionally, the effects of these image-based disclosures on investors’ propensity to vote independently from ISS are greatest when ISS’s recommendation is less precise. While overall a good development, investors should also beware - skill matrices are associated with greater support for directors and so are used as window dressing particularly in firms that are underperforming their peers in terms of stock returns.