Investors and U.S. corporate issuers came together as never before in 2007 to address a wide range of concerns and to better align views on corporate best practices.

That trend is expected to carry into 2008, observers on both sides of the divide say, particularly if the Securities and Exchange Commission empowers shareholders by eliminating undirected "broker" votes in uncontested director elections, and allows investors to nominate corporate directors.

If these key regulatory changes are approved later this year, investors will have additional tools to bring companies to the negotiating table, analysts say. These changes may also provide some activists an incentive to initiate "vote no" campaigns, conversely.

But such campaigns may never materialize if, as expected, the trend toward engagement and away from confrontation continues. While a substantial increase in the level of shareholder proposal withdrawals is the most tangible evidence of the trend toward dialogue, other indicators also suggest that engagement is taking root and is measurably altering the governance landscape.

The creation this spring of an investor-issuer working group to tackle the nuances of advisory voting on executive compensation is one key example. The decision by pharmaceutical giant Pfizer—a governance trailblazer on such issues as director resignation policies and compensation disclosure—to formally engage its top shareholders is another.

Meanwhile, the growing use of the Internet to foster and promote communication between corporate managers and owners, coupled with the relative paucity of high-profile "vote no" campaigns during the 2007 proxy season, also serve as potent reminders that investors and corporate issuers are favoring constructive engagement over confrontation.

To read more about the forces fueling engagement, please visit ISS’ Knowledge Center.