The Center for Audit Quality’s latest Main Street Investor Survey brings good news for boards, audit committees, and U.S. public companies: investor confidence is on a steady rise.
The Center for Audit Quality (CAQ)’s 11th Annual Survey results were published this week. The survey aggregates the sentiment of U.S. retail investors and reports on confidence in global capital markets, audited financial information, and publicly traded companies—among various other aspects. We take a look at the high points and discuss implications for boards:
How Confident are Main Street Investors in U.S. Publicly Traded Companies?
Confidence levels for U.S. public companies have been on a slight and steady climb throughout the last few years. Most notably, the percentage of investors in 2017 with “very little” confidence or “none at all” is at an all-time low at 7 percent. Similar trends were reflected this year for investor confidence in audited financial information (78%) and U.S. capital markets (85%), which both hit their highest point in the last 10 years.
Who’s Looking Out for Main Street Investors?
Who do investors believe is protecting their interests? The Main Street Survey asked investors to consider a number of key players from financial analysts to investigative journalists to Congress. At the very top of the list was independent auditors, whom 84% of retail investors believe are “effective in advancing investor protection”. In the commentary below, we focus on confidence trends for audit committees, board members, and corporate management.
Falling in line behind external auditors, audit committees were deemed to be the next most-effective at protecting investor interests. This is welcomed news nearly a decade after corporate accounting scandals (e.g., Enron) and a financial crisis eroded investor confidence in the U.S. audit system and companies in general. Over the past few years, boards have grown more independent and oversight disclosures have improved, likely contributing to the 19-point percentage bump since 2011.
The steadily rising marks for corporate boards is another measuring stick that reflects positive trends in investor confidence since 2008. Again, advances in board independence and disclosure are likely to be contributing; however, the hands-on approach of today’s institutional investors may also be given credit. Major investors like BlackRock, State Street Global Advisors, and Vanguard are pressuring boards to better engage on strategy and board composition—and on the whole, boards are responding. Witnessing boards’ improvements in shareholder engagement and diversity, retail investors may feel more confident knowing that boards are under the watchful eye of these investment giants.
While the positive trends in board “effectiveness” are to be celebrated, we should point out that corporate boards still lag behind other key players, namely investigative journalists (65%), credit rating agencies (71%), and even corporate management (69%)—the very people they are responsible for overseeing.
Over the years, corporate management has remained a few percentage points ahead of corporate boards, despite the constant spotlight on executive compensation in the news. Once the CEO pay ratio takes effect in 2018, will next year’s survey results reflect any changes in investor perceptions of management?
Recent proxy battles, like the one between Proctor & Gamble and Trian Partners’ Nelson Peltz, certainly seem to reflect these high marks in management “effectiveness” as lately we’re seeing more retail investors side with the company in the face of activism.
Boards, audit committees, U.S. companies, and capitalists everywhere should feel emboldened by the positive trends in 2017 investor confidence. While these gains are a reminder of how far we’ve come, keep in mind that an isolated incident or misstep can quickly unwind the last 10 years of progress.
Boards must continue to balance a full plate of investor interests and focus on year-to-year improvements in disclosure, engagement, performance measurement, cyber risk oversight, board composition, and strategy-compensation alignment.