Board Member, Meet Shareholder

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The Conference Board recently published a blog post on the rapid increase in shareholder requests for special meetings with board members.  Several factors are influencing this trend, including “say-on-pay” and more and more investors calling for the appointment of an independent board chairman.  Indeed, shareholder activism seems to parallel this new wave of requests for special meetings.  The question is, should board member-shareholder engagement be shunned or embraced?  Let’s first review some results from a recent survey conducted by the National Investor Relations Institute.

 
• The majority of survey respondents (60%) state that their companies do not permit board members to engage directly with shareholders (defined as in-person or via telephone).
• Within companies that do allow direct communication, 65% state that any board member may speak directly, while 35% state that only certain board members may speak directly to shareholders.
• Within companies that do allow direct communication, 57% indicate that a member of management is not required to be present during these discussions.
• In general, as market cap increases, so does the likelihood that only certain board members may speak with shareholders and that management’s presence is required.
• Companies are only slightly more likely (43%) to facilitate indirect communication between boards and shareholders (defined as e-mail responses to questions via a third-party, such as the IR department or corporate secretary’s office), than direct communication (40%).

 
There are pros and cons to board member-shareholder engagement, and much of that depends on the shareholder base and propensity for activism. But as the Conference Board points out, engagement is here to stay and it behooves companies to develop a plan of engagement long before a rogue activist is banging down the door.

Following are a handful of tips to consider when board members engage with investors:

• Instead of letting them come to you, proactively engage top investors with a specific agenda, whether it is to discuss the company’s executive compensation plan or other corporate governance concerns.
• Make sure the board member is accompanied by an investor relations representative or another knowledgeable board member.
• Try to summarize positive developments for the company at the beginning of the conversation.  It is easy to get derailed or focus on one specific topic from the outset of a conversation and never return to a broader discussion about positive developments.
• Set time parameters.  Generally, 30 minutes to an hour should more than suffice.
• Ask questions.  Yes, the investor is generally asking the board member questions. But engaging with an investor could provide invaluable insight that could greatly improve shareholder relations.

— Evan Pondel, epondel@pondel.com