Proxy letter to shareholders – form or substance?

Many companies include a letter to shareholders with their proxy materials. But if yours amounts to little more than a form letter or an afterthought, you may be missing an opportunity for your shareholders to hear directly from your management team and/or the board.

A recent webinar hosted by Georgeson and Latham & Watkins, “2014 Proxy Season: What you should know as you draft your proxy statement and prepare for your annual meeting,” highlighted a few letters that show how some companies are leveraging this communications opportunity very effectively. Specifically, thinking of the letter to shareholders in the context of overall good governance practices opens up additional content and messaging avenues to help ensure shareholders understand your corporate story. Here are some examples as you finalize and post your proxy materials.

The Highlights

Investors appreciate when companies tackle the tough issues. Here are a few examples of companies that were able to do that effectively in their shareholder letters.

  • Best Buy’s letter (from the board chairman) detailed the turnover at the top, the public struggle between the board and the founder, and overall business challenges facing the company.
  • Sempra Energy's 2013 letter responded to a shareholder proposal that had already passed, which required separating the CEO and chairman roles (the company’s 2014 letter was less robust and, frankly, disappointing as a result).
  • Barrick’s letter from the chairman and founder of the company is a laundry list of cost overruns on projects and overall industry challenges.

In each case, however, the companies provided clear, strategic responses to address the challenges in front of them. Maybe your company isn’t facing challenges as tough as some of these, but balance, credibility and transparency are important nonetheless.

Another key highlight is that the best of these letters reinforced key strategic messages. Prudential’s letters – both in 2013 and 2014 – walk readers through key components of its strategy, such as international growth, in a concise, compelling manner.

Finally, Mondelez’s letter is evidence that a traditional letter is not your organization’s only option. Graphs and charts help tell the corporate story, both for the previous year and the strategic path going forward.

Other Points to Consider

Interestingly, Prudential’s letter was signed by the entire board of directors, Best Buy’s from the chairman of the board, Barrick’s from the founder and chairman, Goldman Sachs’ from the lead director and Mondelez’s from the chairman and CEO. The overall takeaway is that who the letter is from depends on your organization’s circumstances and unique history. For example, it seems that Goldman Sachs wanted to send a message about the independent nature of its board, prompting the company to have the lead director drive home its points. 

Finally, most of these letters – certainly the best ones, in our view – included a mention of corporate sustainability/social responsibility initiatives. The point is not that companies should be greenwashing or bragging about their philanthropy, but that CSR efforts are often a key opportunity to further your overall strategic plans. They can also underscore your company’s ethics and commitment to doing the right thing – important for increasing confidence in your long-term financial performance, ability to recruit top talent and integrity of management.

Bottom line: make sure the letter you include with your proxy materials is strategic, engaging and balanced, to boost your organization’s credibility and to act as an effective tool for telling your story to shareholders. 

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