The CAQ’s annual survey gauges investor confidence in U.S. markets. What insights can we draw for corporate directors?
Last week, the Center for Audit Qualityreleased the report associated with its10th Annual Main Street Investors Survey.
Over the last decade, the CAQ has queried thousands of individuals; the data paints a picture of the resilience of U.S. investors and their confidence in the capital market system.
Among the key insights, we see a great deal of confidence in U.S. markets, particularly in U.S. publicly traded companies (see below). Outside of the U.S., however, capital markets were commonly perceived as unstable, with only 42% expressing any level of trust. The CAQ report dives further into the factors and influences on market confidence (and lack thereof).
Investor Confidence in Board Members Still Lags
Within the U.S. financial system, several key figures play a role in advancing investor protection. According to the 2016 survey data, investors place great trust in Independent Auditors (81%) and Audit Committees (77%). Yet, Corporate Boards of Directors (61%) find themselves much lower on the list of trusted parties.
Ranking just above Government Regulators, board members trail both Journalists and Credit Rating Agencies when it comes to confidence in investor protection. Ironically, corporate boards rank below Corporate Management (68%)—the very party boards are designed to oversee.
According to TK Kerstetter, Host of Inside America’s Boardrooms, some lack of investor confidence is to be expected.
“With all the stories of bad or ineffective boards during the financial crisis of 2008-9 still fresh on investors’ minds, it’s going to be a steep hill for board members to climb,” said Kerstetter.
Board Performance is Trending Up
Let’s look at the good news. According to the CAQ’s data, confidence in corporate boards is slowly but steadily increasing (up 14 percentage points from 47% in 2011). Today’s institutional investors and proxy advisors are placing greater trust in boards—a trend we expect to grow among ‘main street’ investors as they recognize the progress today’s boards have made and the caliber of today’s directors. From our most recent Investors Board Performance Review:
“Boards [today], by and large, are doing a great job at their core responsibilities of selecting great management talent, holding them accountable, overseeing risk and strategy… Another positive we see is that boards are communicating better with shareholders—much better than they ever have.”
Fund Treasurer and Head of Corporate Governance
“Twenty years ago, [boards] sounded like the beginning of a joke: a priest, an actor, an architect, and a grammar school principal walk into a boardroom. That was a boardroom for an S&P 500 company… Boards have gotten a lot better at ensuring they have the right breadth of skill sets, then communicating that to shareholders.”
Chief Policy Officer
Glass Lewis & Co.
“There is no silver bullet to turn trust around, especially with the media feeding off the occasional bad example story,” said Kerstetter. “My advice to directors is ignore all the peripheral noise and just focus on your tasks at hand—and doing the right thing.”