Communicating to Shareholders – Not All Private-Company Matters Are Private

Private companies enjoy certain advantages when it comes to controlling the financial and other business information they disclose.  Nevertheless, it is vital for private companies to keep their shareholders informed on a continuing basis, just as it is for their public company counterparts.

In fact, addressing shareholder concerns can be even more challenging for private companies because of the need to keep tight reins on certain disclosures for competitive reasons.  It’s a fine line – circulating too much information runs the risk of having it fall into the wrong hands, but too little communication can lead to disgruntled shareholders.

Private companies also are not immune to activism among their shareholders. The destructive nature of such disputes can cause serious problems within a closely held ownership group, often involving generational family ownership and a tightly knit business operation.  Private owners can raise many of the same activist concerns as public investors – including inadequate board composition, insufficient attention to shareholder proposals, questionable reporting or accounting practices, excessive compensation, succession planning, quality of management, operational problems, disagreements about strategic direction, enterprise risk management and other governance issues.

Consequently, it is important for a private company and its board of directors to determine exactly what level of information to provide to shareholders, including employee shareholders, and to communicate it on a consistent basis that aligns with the board’s strategic objectives and messaging.

Establishing a disclosure committee is an essential first step in developing and implementing a shareholder communication policy.  This committee should include the authorized spokesperson(s) for the company and the board, as well as the company’s general counsel.  It should meet at least quarterly – or more frequently, if appropriate – to assess the company’s disclosure practices, ensure that the company is following its own communication policy consistently, evaluate the quality of information flow, review feedback, and confirm that all targeted audiences understand the messaging.  Best practices doctrine also supports anticipating potential operational and reputational issues, and having vetted contingency messaging in place for timely review and distribution in case of a crisis or other situation requiring an immediate response.

To prepare specifically against a potential shareholder activist situation, a private company should  develop a contingency communications plan based on a keen understanding of current shareholder perceptions, motivations, possible demands and/or complaints, and potential triggering events.  Such a plan would include:

  • Preparing a strategic messaging platform to address recent and future performance, long- and short-term corporate goals, industry and market issues, governance practices and more.
  • Establishing a response team of public relations and crisis communications advisors with activist expertise, to integrate with legal and financial advisors.
  • Developing response modes for all stakeholder groups.
  • Elevating the level of social media monitoring, which can provide early clues about shareholder sentiment.
  • Mobilizing credible third-party testimonials.

Setting a high standard of communications not only protects a hard-earned reputation, but can also help a company deliver its message and defend itself in both the private and public arenas. It also will help keep the lines of communication open if the time comes when negotiations are appropriate.  Consistent and effective communication with shareholders is a critical component of a private company board’s governance responsibility.

For more information, please contact Lisa Rose at 216-241-4606 or  For additional thoughts on the capital markets and investor relations, follow Dix & Eaton on Twitter @DixandEaton. 

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