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Listen, Understand, Communicate. (Repeat)

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Glass Lewis and ISS recently released new guidelines for the 2015 proxy season, which go into effect for shareholder meetings held on or after January 1, 2015 and February 1, 2015, respectively.

The new guidelines put greater emphasis on protecting shareholders’ rights with respect to bylaw/charter amendments, litigation, and shareholder proposals, as well as increased qualitative and quantitative scrutiny on executive pay and equity plans.

With shareholder activism continuing to rise and Glass Lewis and ISS guidelines increasingly defining how boards should conduct business, what should companies be doing to prepare for next year’s proxy season?

Here are three simple strategies for making sure your company is ahead of the curve:

  1. LISTEN. Do you know how your investors are feeling about the company and its progress…not just after you send out your proxy, but throughout the year? How often does your IR team engage with investors – not just to update them on your story but to also get feedback from them on management, company progress, etc.?There are two types of companies that typically get widespread voter turnout during proxy season: those whose management spend a lot of time listening to their investors…and those who spend virtually none and find themselves in the middle of a proxy fight.
  1. UNDERSTAND. Understanding your investors’ investment goals and philosophy can go a long way in learning how to most effectively communicate your company’s strategy and actions – before, during and after proxy season. Leverage your IR team and proxy advisory firm to help you gain a clear understanding of the investors who own your stock:
    • Breakdown of the types of investors holding your stock (retail, quantitative vs. qualitative buyside)
    • Buyside investors
      — How long does this investor typically hold? What price targets or corporate developments could cause them to exit your stock?
      — Have they been activist in the past? If so, what were their trigger points
      — What is the investment thesis of the firm? What are their typical entry and exit points? What factors led them to making the decision to buy your stock or increase/decrease their position?
      — Who is the decision maker at the firm? How do they prefer to communicate with the company –and how often?
      — Does this investor subscribe to Glass Lewis or ISS for voting recommendations? Who within your buyside investor’s firm is responsible for voting their proxy? (In many cases, it’s not the person who made the decision to invest in your stock.)
    • Glass Lewis and ISS
      — Is your management team and IR team up to date on the latest guidelines?
      — How do your current policies or potential proposals match up with ISS and Glass Lewis’ recommendations?
  2. COMMUNICATE. Strong shareholder relationships start with a commitment to communication. Waiting until proxy season starts again to talk to a dissatisfied shareholder – or any shareholder – is often too late.
    • Communicate with your investors regularly (especially with the ones who are unhappy)
    • Communicate to your board on investor sentiment and feedback quarterly.
    • Be positive and responsive to investors who request talking with your board. The best way to start a proxy fight is to ignore or dismiss a disgruntled shareholder.
    • Be proactive in communicating with Glass Lewis, ISS and shareholders on sensitive proposals

— E.E. Wang, ewang@pondel.com