When Investors Ask to Speak to Directors

Nov 2015

Preparation is vital to ensure successful board-shareholder engagement.

It is no secret: proxy access and shareholder activism are grabbing the media spotlight, and more institutional investors are asking to speak to directors.

What does that mean for companies, their boards, and IR professionals? As the 2015 proxy season and other recent corporate governance developments have highlighted, companies need a thoughtful and proactive approach on how they structure engagement between their shareholders and board of directors. And, since there is a broad spectrum of shareholder engagement that can occur, companies need to create a flexible and proactive framework for successful board-shareholder engagement.

 Although the playing field has been changing steadily over the years, the desire of shareholders to influence the board and the strategic decisions of companies is not a new development. In the past year, a number of fund managers have publicly called for greater board-shareholder engagement. Vanguard sent a letter to its portfolio companies that asked them to create “shareholder liaison committees” and to “encourage boards to have a thoughtful process to communicate with shareholders.” BlackRock, TIAA-CREF, State Street, and other institutions have urged companies to adopt a 10-point “Shareholder Director Exchange Protocol” to promote more effective engagement. Meanwhile, it appears that directors have become more willing to engage with investors. According to PricewaterhouseCooper’s 2014 Annual Corporate Directors Survey, the results showed a recent increase in the percent of board members who now say they communicate with institutional investors, up to 66% from 62% the prior year.

Guidelines to Consider

Have a Plan in Place: Work with the CEO, CFO, and general counsel prior to scheduling meetings between board members and shareholders to create the proper framework for possible engagement. The communications plan needs to have customized protocols or the ability to adapt to specific situations.

Ensure Consistency in Communications: Board members need to understand the importance of consistent and clear investor communications. Directors should not be speaking with investors or the news media without a clear and well-thought-out communications plan.

Determine Who Should Represent the Company: If board-shareholder communication is necessary, work with the management team to determine the best board member(s) to address the shareholder’s concern and next steps. Also, determine if the IRO, legal, or management needs to participate.

Train and Prepare Board Members: If the company decides that a board member will speak with a shareholder, make sure the individual is properly trained in Regulation FD and understands what has been publicly disclosed. Directors need to be prepared and have a list of talking points and shareholder history, including key concerns and recommendations. Many times, multiple preparation sessions may be needed to prepare for the engagement.

There is a strong need for companies to look forward and anticipate market trends and governance developments. As board-shareholder engagement becomes more prevalent, companies will benefit from having a communication policy on how to promptly address serious investor inquires. Companies and boards need to be thoughtful about understanding their shareholder base and the ever-changing sentiment of Wall Street and commit to a proactive and strategic engagement. This presents an opportunity for investor relations officers to think proactively and add significant value by educating the board on activism, corporate governance, and other key issues that may impact the company.