The Shareholder ForumTM

Electronic Participation in Shareholder Meetings

Forum Home Page [see Broadridge note below]

"E-Meetings" Home Page

"E-Meetings" Program Reference


Note: The views of SEC Regulation FD reported in the article below are common, but not supported by the actual rule and the SEC's clearly stated purpose "to promote the full and fair disclosure of information by issuers." There is nothing in the rule that excludes "governance" information from its requirement of fair disclosure.

For subsequent Forum attention to this issue, see


Corporate Secretary, May 2010 cover story


Corporate Secretary May 2010 cover

May 2010

First encounters

Boards opening up communications with shareholders

By Carolyn Iglesias

First encounters

• Boards opening up communications with shareholders

• Face-to-face meetings, director tours and advisory panels in progress

• Listening is good: shareholders want their viewpoints heard unfiltered

• Directors steer clear of Reg FD issues by focusing on governance topics

• Communications policy, training and setting agendas ease director jitters


Long insulated by oceans of historical precedent from the shareholders they represent, some valiant directors and boards are venturing into uncharted waters as they explore ways to open up communications channels with investors.

Although these ‘first encounters’ often spring from controversy – perhaps a looming proxy resolution – they quickly become productive as each side learns why the other is taking a particular position. Shareholders don’t necessarily expect boards to spontaneously reverse their stand on contentious issues. Instead, they seek to communicate in an unfiltered way with governance decision makers. For their part, directors are eager to explore firsthand what’s on shareholders’ minds.

Whether they’re exchanging emails or letters, talking by phone or face to face, or just listening respectfully to investor concerns, directors engaging with shareholders usually discover that open communication makes good business sense as well as good governance sense.

‘It is essential that there be a two-way street,’ says Ralph Walkling, executive director of Drexel University’s Center for Corporate Governance. ‘Having an open exchange of information and letting shareholders know exactly what is going on with the company enables them to accurately price the assets and better understand the firm’s strategy. What better way to meet the needs of shareholders than to open up communications?’

Opening gambits
Sometimes a more defensive strategy, such as avoiding conflict, drives the process. Shareholders today have ‘more power at the ballot box’, comments Patrick Quick, partner at law firm Foley & Lardner. ‘The more power they have, the more important it is to try to communicate with them so they don’t use their power against management and the board.’ According to Quick, shareholder conflict affects companies when it takes the form of ‘shareholder proposals, withhold vote campaigns, shareholders selling stock or shareholders pursuing hostile actions against the company.’

Although damage control can pose a valid reason for director-shareholder communications, a small but growing number of companies are embracing that dialogue as a legitimate part of the corporate governance process. Institutional investors acknowledge the merits behind the various reasons for establishing regular shareholder dialogue.

‘Any company that’s engaging with us should understand there is self-interest for doing so,’ explains Tim Smith, senior vice president at Walden Asset Management. ‘In other words: what’s the business case? It may possibly build goodwill; it may lessen ill will; it may protect reputation; it may give you intelligence about what your shareowners think are controversies. And, on occasion, it actually leads to people saying, This dialogue is very meaningful. I have no need to pursue a shareholder resolution in the public domain.’

Smith says those possibilities are a ‘good checklist of self-interested, business-case reasons’ that often are – and should be – part of the equation. But he adds that ‘there are many, many, companies doing this because they actually believe in the concept that the shareholders are the owners, and that this is the way companies are supposed to be governed.’

Controversial origins
Stephen Deane, team leader of RiskMetrics Group’s governance exchange, says ‘controversy’ initially impelled the boards of some US companies to begin dialogue with shareholders. Once those boards started to engage with shareholders, however, they found it was so productive and helpful that they continued their dialogue past the issues that had initially brought them together. In a research paper, ‘Board-shareholder dialogue: why they’re talking’, Deane presents ‘case studies of six companies whose boards met directly with shareholders on governance matters.’ He notes that there was wide diversity in the ways in which boards made face-to-face contact with shareholders (typically institutional investors or large shareholders). It’s important to decide whom the board should meet with, he says. ‘Is it just the largest shareholders, à la Pfizer?’ he asks. ‘Or do you have a cross-section of your largest shareholders plus ones that are vocal and active on certain matters and predictably interested in certain issues like say on pay, such as Occidental Petroleum?’ Meeting formats and board participants also vary in Deane’s paper. The meetings range from one-on-one dialogues with a board member or a committee chair to meetings between groups of investors and a board committee, or even the entire board. Deane reports that the governance committee at McDonald’s brought in a panel of experts to discuss the topic of declassifying boards, inviting a group of investors to hear their views. At UnitedHealth Group, meanwhile, directors meet regularly with a standing committee of investors and others who give advice regarding ‘board skill sets and director nominees’.

Meetings initially designed for directors to be in a listening mode almost immediately changed into ‘really engaged dialogue,’ recalls Deane. Establishing expectations with an agreed-upon agenda, having the right people in the room and coming prepared with a good understanding of the issues all contribute to a successful outcome. Even without a specific agenda, participants can expect ‘sincere listening’ and ‘constructive dialogue’. He does, however, add that ‘you don’t really expect the board of directors to suddenly announce that it has reversed a position in this meeting. That would be somewhat unrealistic.’

‘I want to have a discussion with the people who are going to make the decision, not a staff person who is going to filter what we’re saying,’ says Smith, commenting on investor expectations. ‘It’s inappropriate for us to put directors on the spot.’ Whether or not change occurs, investors believe the opportunity to express their views to a decision maker who takes their position back to the full board for discussion is a ‘major step forward,’ Smith adds.


Making friends and influencing people
Even companies not inclined to open up board-shareholder communications may have to change course, simply because directors are more accessible today. ‘In the past the board of directors was a list of people on the back of an annual report and you didn’t have a lot of interaction with them,’ comments Maureen Wolff-Reid, president and partner at Sharon Merrill Associates, an investor relations consultancy. ‘Board members are much more visible now. They’re on the corporate website; they may be on LinkedIn. Before, you might have had to send a snail mail letter to reach them. Now you know where they work and you can pick up the phone and call them at their place of business.’ Nor are shareholders shy about approaching directors and voicing their concerns, even in informal situations like cocktail parties. Wolff-Reid believes implementing a board-shareholder communications policy is one way to calm potential director jitters about planned, or unplanned, shareholder interactions. The policy she advocates establishes processes for board-shareholder communications and ‘a method of flagging’ inbound shareholder inquiries that should rise to board level. For example, the policy might require that all inquiries enter through investor relations (IR) or the corporate secretary, who will then send them to directors. This enables directors to base their responses on an improved understanding of the investors and the context from which their questions arise.

The communications policy also identifies the issues that are more appropriate for the board to discuss – board structure, nominations, executive compensation, CEO evaluation and succession planning, for example – versus those issues more appropriate for management, such as product lines, operations and financial results. ‘A board would typically defer all operating and financial performance questions to the senior executive team,’ comments Wendy Webb, a board member at Jack in the Box who serves as chairman of the firm’s nominating and governance committees and as a member of its finance committee.

Webb, who formerly headed IR at the Walt Disney Company and Ticketmaster Entertainment, says shareholder communications directly from the board ‘should be a carefully considered process and one developed through consensus.’ Because board communications are at such a high and sensitive level, Webb believes they should be carefully coordinated and orchestrated. ‘Rogue board member communications may not serve the best interests of the firm’s shareholders,’ she explains.


Meeting in the middle
Directors’ preparation for meeting investors typically includes regular shareholder updates from the IR department, working out techniques for setting a meeting agenda and managing expectations, gathering information about what other companies are doing, and Reg FD training. Fear of breaching Reg FD is the biggest perceived stumbling block to board-shareholder dialogue – but it doesn’t have to be. The best way to avoid running afoul of Reg FD is to focus on governance matters under the board’s purview.

‘Day-to-day operating questions and financial performance questions, among others, should all be addressed by the company because it will be the expert in Reg FD and the levels of disclosure the firm has already had,’ adds Webb, who is also managing director at Tennenbaum Capital Partners. ‘Of course, if there are matters that need specific attention directly from the board, it should embrace its role and careful and thoughtful interaction should take place, as needed, to best serve shareholders.’

Webb says questions about CEO compensation, nominating decisions, the skill sets the board was looking for in adding to its ranks, and possibly some audit committee oversight questions might also be appropriately addressed by board members.

‘Companies struggle with Reg FD but get to a point where they can have productive meetings,’ explains Quick. He cites compensation disclosure in the proxy statement as appropriate material for board-shareholder dialogue because compensation discussion and analysis disclosure ‘does not bear in a material way on an investment in a company’s stock.’ He also says it’s a good idea for the company’s IR officer to be present at the meetings to ‘raise the red flag’ if the dialogue starts moving into forbidden waters.

As the currents of change continue to shift toward heightened recognition of shareholder rights, more board-shareholder first encounters are inevitably going to occur. Increasing say-on-pay votes, new mandated disclosures with regard to board qualifications and potential SEC-mandated proxy access are all guiding companies to chart that course. ‘All those things, I think, point to companies and directors wanting to communicate in new and better ways with shareholders,’ concludes Deane.






This Forum program is open, free of charge, to anyone concerned with investor interests in the development of standards for conducting shareholder meetings with electronic participation. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

The organization of this Forum program was encouraged by Walden Asset Management, and is proceeding with the invited leadership support of Broadridge Financial Solutions, Inc. and Intel Corporation to address issues relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.