Look Who’s Talking … Again

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.


 

LOOK WHO’S TALKING

March 21, 2018

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 AllocationDirector-shareholder engagement topics

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.


 

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

Virtual Meeting Reality

It was inevitable.  Whether its a routine and recurring process or an opportunity to interact or engage, technology can offer a solution.  That’s exactly what’s happening with corporate annual meetings.  In July 2018, Broadridge reported that it hosted 212 virtual annual meeting in the first half 2018, up 18% from the same period in 2017.  Virtual annual meetings can reduce costs and expand shareholder access.  No wonder more companies are doing them.

Yet, this growth has some large institutions and their advisors wringing their hands that investors will lose a key opportunity to directly engage with boards and management teams if annual meetings go virtual.  I also suspect some institutions worry boards may become less accountable to shareholders if not forced to look them in the eye.

As previously discussed, I believe this is really a question of form over substance.  Annual meetings are a formality; the end of a process.  The real substance of the matter is shareholder engagement.  Managements and boards should understand investor perspectives and engage with them on issues meaningful to shareholder value.  Today, investors have many tools to engage with companies beyond the annual meeting.

Nevertheless, I believe annual meetings – live, virtual or hybrid – should be conducted in a manner respectful of investors’ position as part owner.  To that end, a committee of institutional investors, public company representatives and advisors have developed some basic principles and best practices for virtual annual meetings[1], which are generally reasonable.  virtual annual meeting 3Not surprisingly, the committee places heavy emphasis on ensuring shareholders participating virtually have the same opportunities to present proposals, ask questions or make a statement as they would at a live meeting.  The committee fairly notes this objective should be a determinant of how the meeting is conducted and what technologies are used.

I further agree with the committee that boards should thoroughly weigh the pros and cons of a virtual meeting in view of their shareholders’ sentiment toward such meetings (some have strong opinions which may affect the proxy vote), the issues to be voted upon (is it a routine meeting or are there controversial proposals) and other potential issues of concern.  Boards should explain their rationale for the meeting format and communicate formal rules of conduct for the meeting, including outlining the Q&A process such as when questions will be accepted, and the time allotted in total as well as per shareholder.

I have a more skeptical view of the committee’s suggestion that companies consider making an archived replay of the meeting available.  By their very nature virtual meetings are more accessible and snippets may go viral, potentially giving dissidents a larger platform to voice their agenda.  Given that annual meetings are a formality and no news is typically announced, why take that risk?

The reality is the use of virtual annual meetings will continue to grow.  In this brave new world, companies need to ensure the technology and format provides for a fair and equitable process, while investors need to recognize that engagement is not an annual event linked solely to the proxy.

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

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[1] Principles and Best Practices for Virtual Annual Shareowner Meetings, The Best Practices Committee For Shareowner Participation In Virtual Annual Meetings, May 2018

Look Who’s Talking

Its 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
Director-shareholder engagement topics

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.

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

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and like them on LinkedIn or Twitter.

New Kid in Town, Part II

There’s talk on the street; it’s there to remind you
It doesn’t really matter which side you’re on.
                                                         New Kid in Town, Hotel California, Eagles, 1976

A previous post reviewed the challenges of introducing new a CEO or CFO to investors.  But what’s investor relations role when a new director joins the board?

Board refreshment is a hot topic among many activist and institutional investors. This reflects understandable investor concerns about boards’ ability to oversee evolving strategies and risks in rapidly changing environments.  Questions investors ask include:  Does the board have the requisite expertise, experience, and skills?  Is the board’s self-assessment process rigorous and objective enough to identify its own strengths and weakness and implement a plan to address?

When boards refresh themselves – voluntarily or otherwise – it speaks to the opportunity for a new level of energy, perspectives and engagement in the board room.  The good news is boards are taking action:

Board TenureSource:  Spencer Stuart Board Index 2017

The new director onboarding process is managed at the board level with the General Counsel/Corporate Secretary playing a pivotal role.  The amount of information a new director needs to absorb is daunting.  Beyond getting an overview of the company, its management team, strategies and results, new directors also receive background on the other directors, past board meetings as well as corporate, board and committee governance documents and policies.  From an investor relations perspective, information that new directors should be provided include:

  • A profile of the overall shareholder base, including investor style, turnover and a risk/opportunity assessment of key investors (e.g., recent ownership changes, sentiment, relevant activism history)
  • An outline of the overall investor relations and shareholder engagement effort including the typical message development and communications process as well as management or board access practices
  • A summary of analyst reports and investor perspective on the company, peer set and industry

Materials like these can help ensure the board is aware of investor perspectives and help inform their decisions. As a steward of corporate value, investor relations is well positioned to provide this to them.

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Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

 

Form Over Substance

Its year end.  A time for the inevitable year in review summaries and year ahead outlook for proxy and governance matters.

Of all the substantial topics being addressed, I’m somewhat amused with the concern over virtual-only annual meetings.  2017 saw a surge of roughly 40% in number of U.S. companies hosting virtual-only annual meetings to whopping total of approximately 170[1].

Institutional Shareholder Services (ISS), Glass Lewis, the Council of Institutional Investors (CII) and some public pension funds are concerned virtual-only meetings will “hinder meaningful exchanges between board members and shareholders.”[2]  To their credit, these organizations recognize virtual meetings can reduce costs and expand shareholders access.  Yet, in their view, these benefits do not outweigh the concerns.

I think this is a question of form over substance.  Annual meetings are a formality; the end of a process. I’m hard pressed to believe the outcome of a proxy vote depends upon the annual meeting format – be it live, virtual-only or hybrid.  Investors today have many tools to apply pressure to a recalcitrant board beyond staring them down in-person at a live meeting.

The substance of the matter is shareholder engagement.  Managements and boards have a fiduciary responsibility to shareholders.  They should understand investor perspectives and engage on issues meaningful to the creation or protection of shareholder value.  When there’s a break in engagement, the proxy process is a key vehicle to raise issues with all a company’s shareholders.

Now, there should be standards of conduct for virtual-only annual meetings.  These standards should provide essentially the same opportunity for shareholders to make a statement or ask questions as in a live meeting while still enabling the company to control the agenda.  This could potentially be done via a dial-in conferencing number using an authentication process similar to that for accessing the webcast.

A word of caution to companies:  Making it easier for shareholders to participate in annual meetings is a double-edged sword.  Be aware that a virtual-only or hybrid meeting may potentially give shareholders a larger platform and greater reach than just being in a hotel ballroom.  So be thoughtful in your approach.

 

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

[1] Virtual Only Meetings: Streamlining Costs or Cutting Shareholders Out?, November 15, 2017
[2] ISS 2017-2018 Policy Survey Summary Results, pp. 5