Board’s Guide to Trust—Building Trust With Institutional Investors

In brief: 2020 has tested the stewardship skills of company leaders and directors alike. Companies have continued to face mounting pressure to address the needs of a spectrum of stakeholders—not just shareholders. Today, a vast majority of institutional investors believe that a multi-stakeholder model will deliver better long-term financial returns.

For public company boards, the mandate is clear: directors must be fully attuned to their investors' priorities and the vulnerabilities of falling short of their expectations.

Today, board accountability is increasing in parallel with that of management, as shareholders, employee activists, and the rising importance of ESG considerations place boardroom oversight under a more critical lens. Directors need to be far more attuned to multi-stakeholder concerns than in the past and fully aware of related risks to the company’s business. This brief highlights findings in the latest Investor Trust survey, which are pertinent to boards.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.