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Special Project Report
For Presentation at July 13, 2010 Open Meeting of the Shareholder Forum
by David A. Silverman, workshop leader
Communication Between the Board of Directors and the
Shareholders:
Opportunities and Considerations
This report will attempt to identify keys issues relating to the
communication and interaction of the board of directors and the shareholders
in the context of modern electronic communications. Ultimately, the Board
must decide how they want to interact with shareholders and whether an
emeeting or other technologically enabled communications can be additive to
that process. To compile the report, I have discussed this topic with board
members at corporations of varying sizes, institutional investors, and asset
managers. The report attempts to capture the range of views and identify
some key issues for Boards to consider when making a judgment. It is
intended as a catalyst for an ongoing discussion at the
Forum meeting and beyond.
Continuum of Director-Shareholder Interaction
An annual meeting has to be viewed in the context of a broader program of
shareholder and board communications, whether those communications are
electronic or face to face. Directors and investors expressed interest in a
constructive dialogue and thought that this dialogue should extend beyond
the annual meeting to a regular program of communication between directors
and shareholders during the course of a full year. Directors thought they
could understand the shareholder base by attending a few events during the
year, for example, analyst days, meetings at investment conferences, and one
on ones with investors and management. The requirements for the annual
meeting can therefore vary based on other opportunities for interaction.
If, for example, a company holds an analyst day with executive management
and directors attending and interacting with shareholders, then the level of
activity at the annual meeting might be less than a company that does not
host such an event.
Because most votes at the annual meeting are cast in advance, there is an
inherent timing problem in hosting a discussion at the meeting itself.
While more interaction is likely helpful on the margin, the participants
would often be effectively discussing next year’s business because the
proxies for that meeting had already been cast.
Both directors and shareholders favored direct, in person interaction
between the company and the investor base, especially when a potentially
contentious issue has arisen. While the exact degree of management and
board attention to this direct interaction was subject to a broad range of
views, directors and shareholders both believed they had personally
benefited from having a face to face interaction. Directors wanted to be
informed of all substantive inquires from shareholders, at least in summary
fashion. Directors should also be aware that investor attitudes to a
company and to the board specifically are influenced by whether they believe
there is an ongoing dialogue and response to their concerns. The Board must
decide on a process of meeting and responding to inquiry. Even when there
is a difference of opinion between the board and a particular investor, a
meeting was often valuable to both sides. Boards should be aware that
shareholders are concerned that emeetings should not be used to discourage
direct interaction.
Electronic Communication at the Annual Meeting
The concept of an emeeting is still new, and none of the participants
expressed a “killer application,” that they felt makes an emeeting a
compelling option. At this point, it is certainly a tool that can be used
creatively by companies interested in improving their investor
communications. As directors decide whether and how to implement an
emeeting, they should be aware that there was strong opinion on behalf of
several investors that any emeeting maintain certain minimum standards:
·
Shareholders should still be able to attend a live, in person
annual meeting with the management and the directors present, if requested.
While all participants may agree that the typical meeting may not have a
large number of in person participants, investors draw significant comfort
from the idea that this option is there.
·
Shareholders should be allowed to question both executives and
directors during the meeting.
Boards and executive managements considering an emeeting should attempt to
identify some clear goals they have for the extension of the annual meeting
to electronic communication. Possible goals might include:
·
A forum where the company can reach shareholders with whom
they are not otherwise able to communicate effectively. This could
include companies with retail shareholder bases making themselves more
available or smaller companies that have difficulty attracting institutional
attention making it easier for institutions to learn more about the company
and what it is doing. Several participants mentioned that the Board should
think of the annual meeting and the broader scope of shareholder
communication as more of a marketing opportunity to present the company’s
approach to governance and strategy.
·
Creating a record of availability. If a company takes
questions from any shareholder able to attend the annual meeting via an
emeeting, for example, then the company may find that record useful in
future dealings with shareholders. A key point that arose from my
discussions was that sometimes directors were not aware of matters that
shareholders had raised in the past and that led to a problem in
board-shareholder communications.
·
Creating a relationship with the governance groups at
larger shareholders. At some investors, the financial analysis and
governance analysis function are not performed by the same group. The Board
may want to have a relationship with both constituencies.
·
Creating a relationship with shareholders outside of
intermediaries. Directors were interested in understanding at least who
their most significant shareholders were, and forming some sort of
relationship with them. This can be useful in the event the board wants to
take an action, that they believe is in the best interests of shareholders,
but where they will need to convince the shareholders to vote against the
advice of a third party advisor.
I would like to thank the directors and shareholders who provided input to
this report. I can be reached at
david_a_silverman@hotmail.com.
July 8, 2010
David A. Silverman
Blue Harbour
Group
Corporate Governance Committee of the New York Society of Security Analysts
(NYSSA) |