by Lisa Rose

August 15, 2016

This is part one of a three-part series on board engagement. Future posts will include perspectives from a public company board member and an institutional investor.

Corporate directors are becoming more involved in shareholder engagement than ever before – not only because of shareholder activism, but also as a proactive strategy to ensure that investors are receiving the right messages and their concerns are addressed.  Their involvement can enhance management presentations by  providing a greater sense of the credibility and commitment of the entire board.

But while a growing number of companies are engaging with investors (see this Investor), some boards and management teams remain unconvinced about the wisdom of allowing shareholders to meet or otherwise communicate directly with board members, in any situation. According to a 2013 survey by PricewaterhouseCoopers, one-third of company board members say they are opposed to communicating directly with institutional shareholders, and half of them believe it is inappropriate to have such communications with retail investors.

Shareholders have a different view, according to the same survey. They place a high value on communicating directly with board members. This is particularly true if they have specific corporate governance concerns and want to get the company’s attention without resorting to more aggressive actions such as withholding director votes or initiating proxy fights.

Like any other proactive strategy, effective engagement with shareholders requires considerable planning, preparation and effort, along with the ongoing commitment of a company’s board and management. Here are some steps to follow to ensure that investors are receiving the right messages, their concerns are addressed and everyone’s time is being used efficiently:

  • Decide what to say and when to meet.It is important for everyone participating to be familiar with the SEC’s Regulation Fair Disclosure, more commonly referred to as Reg FD. It is also important to know which topics to avoid. Discussions about operations and financials are best left to management; directors should focus on long-term strategy, shareholder interests and corporate governance. And, since proxy season is likely to be a busy time of year for shareholders, it could be beneficial to schedule meetings between proxy seasons if no pressing issues exist.
  • Know and prepare for your audience.Meetings with institutional investors should include governance managers as well as portfolio managers, to ensure that the company’s directors are talking to the people who actually will make the voting decisions for the institution. Board members should come to the meetings prepared to make a strong case based on the business, strategic and philosophical rationale for key management and board decisions.
  • Take the opportunity to listen.The conversation should be a two-way street. By listening to shareholders, boards and management teams can gain a better understanding of what their concerns might be, and what it takes to truly serve the interests of all shareholders. It also is an opportunity to learn more about the shareholder’s personal goals, philosophies, interests, background and investment policies, which can be valuable information to help shape future communications.
  • Develop strong supporting materials.Shareholder engagement can be most productive when a company has communicated its strategy and governance practices consistently and concisely through the variety of publications and filings it produces on a regular basis. If an investor has a clear understanding of strategies and goals from communications such as annual reports, earnings releases, proxy materials and investor presentations posted on the company’s website, then the conversation during the meeting can be better focused on the key issues to be discussed.
  • Identify shared goals.Ultimately, shareholder engagement can help bridge the perceived gap between management and directors on one hand, who may view activists as hostile usurpers out to make a quick buck, and investors on the other, who might question the existing leadership’s ability or commitment to truly act in the best interests of shareholders. By communicating clearly with each other and sincerely dedicating their efforts to building a productive relationship, both sides can work more effectively toward achieving the shared goal of generating attractive returns for shareholders.

For more on Lisa’s perspective regarding this topic, please also see  “Shareholder Engagement: Shaping Your Strategy” in the March/April 2016 issue of The Corporate Board  (subscription required) or contact Lisa at or 216-241-4606.

Helpful links

Evolving Director-Investor Communications: Preparing for Your Board’s Direct Engagement with Shareholders

Engagement: The Missing Middle Approach in the Bebchuk–Strine Debate

Vanguard CEO letter to board directors