Increasingly, its corporate directors. That’s a key highlight from a snapshot summary of the National Association of Corporate Director’s (NACD) annual Public Company Governance Survey, which reported that 58% of respondents said a representative from their board(s) met with an institutional investor over the last 12 months. This is up from 50% reporting same in the prior year.
Driving this is an environment where expectations for transparency and board engagement are much higher. Also contributing is a recognition among many boards of the proxy voting power of certain institutional investors and their ability to effect governance changes (think majority voting and proxy access).
Shareholder engagement is no longer an event-driven, proxy-related process. Boards increasingly approach shareholder engagement strategically – as an opportunity to gather constructive input, foster trust and support and dialogue on issues meaningful to the creation or protection of shareholder value. But, this doesn’t mean boards are involved in day-to-day investor interactions – that responsibility still resides with management. Rather, boards are exercising more oversight. For example, boards are looking for more information about the company’s:
- Governance team: Who is on the team? Does it have the right set of knowledge, competencies and skills? Can it effectively represent the board’s view? Can it articulate the nuances of the board’s perspective vs. the company’s position where applicable?
- Shareholder monitoring and engagement plans: Who are the company’s top investors and how has this changed or is expected to change? In view of this, what are the top governance areas of strength or opportunity? Are any investors (or advisors) more influential than others and should be prioritized? What is the engagement plan and when does it makes sense for directors to engage directly? (See the post republished below for some thought starters on the latter.)
Shareholder engagement is an opportunity for companies to build better understanding, relationships and alignment with long-term, stable investors. Forward-thinking boards are embracing this opportunity.
It’s fun to be popular. Everyone wants to talk to you. Investors big and small with long- and short-term horizons seek opportunities to meet with and speak to company leadership. Today, even passive investors – index funds, etc. – expect to occasionally engage with companies on relevant issues.
Now, who should do this talking? Company management. With, of course, investor relations leading the day-to-day. However, it’s naïve to think Boards do not or should not talk with investors. While I believe board-shareholder engagement should be the exception and not the rule, if done for the right reasons with the right people it can be extremely valuable.
To that end, you should have or develop a communications policy that encompasses the potential for board-shareholder engagement. A well-crafted policy will provide a framework to guide the engagement decision given the specific circumstances and needs of the company. Let’s start by considering what topics are best addressed by management vs. the board:
Example Management/Board Engagement Topic Allocation
Next, consider with whom and when board-shareholder engagement makes sense. Any decision will be a judgement call based on myriads of factors and the specific investor(s) at hand. Things to think about when deciding include the company’s strategies, results and relative performance, the nature of the investor’s issue(s), general investor opinion/perception about the matter(s) as well as the size of the investor’s holdings and influence within the investment community.
Here’s some thoughts for when it comes to the actual meeting or call:
- Agree to an agenda upfront
- Select directors for engagement based on board roles or prior experience
- Prep participating directors on the issue(s), company messages and investor background
- Provide directors a Reg FD refresher and a brief on company information in the public domain
- Focus on active listening
- Consider including a company representative such as the IRO or corporate secretary in meeting but allow for a private conversation for part of the time if requested
- Capture investor feedback; ensure follow-up as necessary.
Board-shareholder engagement is an opportunity to gather constructive input and engage on issues meaningful to the creation or protection of shareholder value. Approach the process with an open mind.
Lead-IR Advisors, Inc.