Public company executives have long engaged with their shareholders, especially during proxy season, to share business strategy and address investor concerns. In recent years, public company directors have increasingly been asked to participate in the process and such engagements now may occur year-round. While there can be advantages to director-shareholder engagement, the new practice poses challenges boards should consider before proceeding.
Potential advantages to director-shareholder engagement include:
- Increasing a board’s understanding of shareholder concerns
- Increasing shareholders’ appreciation of governance realities
- Managing expectations
- Cultivating a shareholder base that understands and values the company’s particular culture, business, and strategy
To achieve such objectives requires thoughtful planning, takes time and patience, and poses some risk of inappropriate disclosure. It is up to each board to balance the potential advantages and costs according to its business judgment. To help inform that judgment, it may help to think about what a general policy on the topic would look like. Think of this as addressing the who, what, when, and how of shareholder engagement.
First, a policy would address who would participate in engagements. Among individual directors, logical choices would be those with experience in shareholder engagement, along with those with the broadest purview among the board, such as the board chair, vice chair, or lead independent director. Some boards might prefer to form a committee on shareholder engagement to include others, as well, or to invite those with subject matter expertise to participate with relevant engagements on an ad hoc basis.
Next, a board-shareholder engagement policy would outline what subjects are fair game and which are off-limits. While engagements should be as candid as possible, directors must be careful to avoid disclosing a company’s proprietary business information, such as trade secrets, as well as any material nonpublic information. A company’s general counsel or outside counsel should weigh on this part of the policy.
Timing is an important consideration. When will engagement occur? While, historically, companies engaged with shareholders around proxy season, in recent years, many shareholders wish to engage throughout the year. The ideal scheduling will vary widely. But consider that many shareholders will have their own preferred cadences and companies may wish to set blackout periods, such as around quarterly board meetings.
Lastly, an engagement policy should address how shareholder engagement should occur. One key topic would be whether engagements are done in small groups of shareholders, one at a time or some combination. Another is the degree of formality, in terms of agendas, minutes, and reporting to the full board. Logistics might also be considered, such as any preferences for in-person versus remote meetings.
In thinking through these points, boards considering director-shareholder engagement will undoubtedly think of others—such as how to involve management and any investor relations staff, whether to reach out to shareholders or wait for them to do so, or whether to communicate the upshot of such engagement to the shareholder body at large through a periodic website. Such an exercise should illuminate whether and how to proceed.
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