FOCUS REPORT

Investor Information Requirements

Looking at shareholder meeting communications from the investor side, the big challenge will be getting the information needed for making a growing number of significant voting decisions. The sheer number of non-routine voting matters requiring consideration is expected to dramatically increase as a result of the new Financial Reform Act’s provisions for “Say on Pay” and proxy access, and even routine voting matters will continue to require more attention as investors demand improved risk control and accountability. 

And investors want to get this information directly from a company’s management. A December 2009 Shareholder Forum survey of professional investors’ voting criteria showed a more than double preference for direct management sources compared with proxy advisors and other governance research sources.

How leading investors do it

For a view of how the challenge can be managed if you have the resources to do it right, we asked Hye-Won Choi,* senior VP of corporate governance at TIAA-CREF and co-chair of the SEC Investor Advisory Committee, to tell us how things are done at her firm. TIAA-CREF, known for its leadership in governance policies and constructive communications practices, generally has quarterly meetings or calls with several of its large portfolio companies, and speaks frequently to a number of executive functions including the investor relations executive, the corporate secretary, the CFO, or the head of governance. Sometimes it is the companies that initiate communications, to find out such things as what the fund thinks of various issues, Choi says. “We are not picky about the structure or the mode or the type of communication, as long as communications occur in some form,” she says. “We do it all year and in all sort of ways, whatever is more convenient – they can be structured conversations, unstructured conversations, formal, informal, over the phone or in person.”

We also asked how they do things at Blue Harbour Group, an investment firm that concentrates its portfolio in a small number of long term positions that justify their full attention. David Silverman,* managing director of Blue Harbour and chairman of the New York Society of Security Analysts corporate governance committee, described practices of continuous communication with multiple management representatives that were similar to what was reported at TIAA-CREF. Silverman explained that his firm’s significant commitment to each of its portfolio companies’ long-term success makes it especially important for them to be able to talk to management representatives who can discuss more than just the quarterly and yearly view. “As a long term, lead shareholder, we find it is helpful to speak both with management and the board about the company’s long-term horizon,” he says.

The rest of us

Mark Latham, founding director of Proxy Democracy and a representative of individual investors on the SEC Investor Advisory Committee, has been concerned for some time with how shareholders that lack the resources of large institutional investors can make informed voting decisions. A staunch believer in the power of the Internet to transform shareholder dynamics, Latham proposes making greater use of electronic communications technologies to give small investors easy, inexpensive access to the views of professionals who do have the resources to perform research and ask questions.

Others see the use of electronic technologies as a means of expanding the access of all investors to direct management sources of information, as well as to the views of other investors. A variety of processes, such as webcast meetings and question-and-answer sessions, open the communications to anyone with access to the internet – not just those with access to the resources of a TIAA-CREF or Blue Harbour.

What works for all of us

Indeed, modern technology can be used in a variety of ways that improve communications for everyone – from large to small shareholders.  A high value example is the use of conference calls and webcasts to enable greater access to both executive and board level managers.

TIAA-CREF’s Choi considers direct board communications especially important in relation to executive compensation issues. “Executive compensation is one area where there is greater scrutiny and where if there are any serious issues or problems we would ask for a meeting directly with the compensation committee,” she says.  “There needs to be a better understanding by shareholders of what directors think and by directors of what shareholders care about.”

Silverman at Blue Harbour also considers director participation in communication important to build sound investor relationships. “Companies that want to attract long term holders should consider how they can get investors comfortable with both management and the board,” says Silverman. “When a company chooses to host an analyst day, it is a positive sign if board members are present to hear what investors are asking about and what they are saying.”

Another example for an area where technology can improve communications is “pre-meeting meetings.” An idea that has been getting a lot of interest, many investors favor a communication process that allows discussion of important voting issues before decisions have to be made. But many of them also caution that such meetings should only be held on an as-needed basis when the voting decision justifies the attention, and not routinely. Making the “pre-meeting meetings” a routine practice could mean adding hundreds more meetings to attend. But most importantly, if they are held when there is nothing important to discuss, as TIAA-CREF’s Choi says, they “will become routine and no longer have impact.”

And impactful communication, after all, is what investors are looking for.

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* Ms. Choi and Mr. Silverman are members of the Forum’s Program Panel for E-Meetings.