Meetings of independent directors and prominent shareholders are becoming more popular, not only as a way to respond to shareholder activism but also to mitigate the risk of activism before it even begins. Earlier this year, The Harvard Law School Forum on Corporate Governance and Financial Regulation published an in-depth piece on the importance of developing shareholder engagement strategies for board members. And, just last week, I attended the RR Donnelley SEC Hot Topics Institute in Cleveland, where the topic came up in the context of responding to shareholder activism.
Our experience indicates that many companies are still not sure if such meetings make sense for them, what they might accomplish and whether they are truly a good use of a director’s time. Often, this uncertainty prevents them from moving forward with a strategy that can provide critical interaction between institutional investors and independent directors, create a long-term relationship based on mutual respect and understanding, demonstrate the board’s effectiveness and help drive accountability.
Like any proactive strategy, these meetings require planning and commitment. Here are some guidelines to help ensure success:
Time your effort right
As the RR Donnelly Institute noted, a great time to set up shareholder meetings is the summer and fall, between proxy seasons. This timing allows the conversation to center on issues important to your company and its shareholders without getting too defensive. However, it’s important to remember that the relationship between independent directors and shareholders should be truly ongoing, with touch points throughout the year.
Meet with the right people at each institution
Make sure your meetings are with the governance managers, not just the portfolio managers. Depending on the institution, it is possible the portfolio manager has nothing to do with how shares are voted. Therefore, it is important to ensure board members are meeting with the decision-makers.
Brief, debrief and brief again
It’s important for everyone attending the meeting to be familiar with Reg FD. While disclosure concerns should not prevent board members from speaking with investors, it is important to brief board members on Reg FD ahead of these meetings – even if it’s just as a refresher. Then, debrief afterwards to reinforce and discuss any issues. It’s also important to be sure someone who understands the company’s disclosures is in the room, whether that’s the IRO or general counsel, to advise board members on recent corporate announcements.
Know which topics to discuss (and which to avoid)
The conversation should be less about operations and financials and more about long-term strategy and corporate governance topics. These meetings also present a great opportunity to discuss the professional, industry and strategic experiences of the board members, along with general corporate governance policies and philosophies.
Make the conversation a two-way street
While investors will likely jump at the chance to hear directly from board members, these meetings provide companies with an opportunity to conduct a “listening tour” to learn more about the backgrounds, goals, and investment and governance policies of the institutional investors.
Although each situation is unique – as each company is unique – what’s clear is that you don’t want to wait until you’ve already been targeted by activists to develop your shareholder engagement strategy with your board. A strong line of communication with investors makes surprises less likely to occur during proxy season.