week's news from other boardrooms
Companies Prepare for New Investor Communication Demands
Article published on October 18, 2010
As companies approach the
2011 proxy season, they are rethinking the way they reach out to investors
and how that communication can be more useful to both parties.
Next proxy season will stand apart in terms of investor communications due
to new items on the ballot as a result of demands from the SEC
and Congress, including say on pay. And even though proxy access has been
delayed, experts say good investor relations should be exercised now to lay
the groundwork for when and if access is granted.
“[The] list of topics will be longer and will have evolved,” says
Paul Washington, the corporate secretary at Time Warner.
“We’ve talked about say on pay in the past, but now we’re talking about [how
often to have] say on pay [votes].”
Another issue for the upcoming proxy season will be getting investors’
thoughts on these new items while many of them are still formulating their
policy positions. “What’s challenging this year is we’re all thinking
through this at the same time,” Washington says.
Experts say boards have a large role to play in monitoring how companies
approach investor relations in this new era of governance.
“We’re finding, as boards begin to understand more about how the environment
is changing, they are taking more of an interest in how the company is
responsive to different elements of the investor universe,” says
Lissa Perlman, a partner at Kekst & Co., a
consultancy firm on strategic communications for senior management and the
board. That doesn’t mean they are actively engaged in speaking to investors,
she adds, but boards do want to know more about who the company’s investors
are and how those relationships are being managed.
conducted in August by the Shareholder Forum on e-meetings,
which is chaired by investment banker Gary Lutin, indicates
that the preferred method among institutional investors for obtaining
information to vote their proxies is to ask direct questions of management,
followed by reading viewpoints of dissident investors, meeting with
management and presenting questions to dissidents.
Furthermore, investors said they would spend the most time evaluating proxy
voting decisions for a merger proposal or if there was a contested board
election. Decisions on say on pay and approval of a stock plan for
management compensation were given slightly less priority.
Like many large companies, Washington says, Time Warner has a good process
in place for reaching out to major investors on governance issues. The
corporate secretary’s office will meet with its 50 largest investors during
the proxy season and slightly fewer investors during the rest of the year,
he says. Sometimes these meetings will involve a representative of the
investor relations department.
But not all companies have coordinated efforts between the IR and general
counsel/corporate secretary’s offices. Experts say that as companies enter a
new stage of investor communications, a key component will be collaboration
between these two departments.
If the functions are highly segmented, “it can lead to misunderstandings,”
Washington says. For example, if the investor relations officer (IRO) is on
the line with a portfolio manager that has questions about corporate
governance, it helps to have the corporate secretary’s input. Likewise,
corporate secretaries can sometimes find themselves speaking to investors
that have questions about price-to-earnings ratios or dividend policies that
the IRO is uniquely positioned to answer.
Bridging the Gap
The segmentation between the IRO and the corporate secretary originates from
the different types of investors to whom each department is speaking.
Corporate secretaries often talk to activist pension funds, naturally, but
also to the non-activist staff at mainstream mutual funds who conduct the
research and actual voting of the proxies. IROs, on the other hand, deal
mostly with the buy- and sell-side analysts and the portfolio managers at
funds — in other words, the investors who are responsible for picking and
Some investors and corporate managers say there are ways companies can help
bridge the gap between these two types of investors. In addition to more
coordinated efforts between the corporate secretary and IR department,
companies could also find forums to draw both types of investors together.
“If you’re sitting in the board of directors seat and you want somebody who
is the portfolio manager to be making a governance-oriented decision, then
you have to make information available in a forum where that investor will
be able to easily consume that,” says David Silverman, a
managing director of Blue Harbour Group, an investment fund
that takes large and active positions in a concentrated number of companies.
One example could be discussing governance issues at the annual investor
analyst day or during a quarterly earnings call. “If you want the same
person analyzing quarterly earnings to also think about governance, then you
have to provide them with that information [and] you need to explain how a
governance decision relates to the financial performance,” he says.
“If a company thinks effective corporate governance is a competitive
advantage for them, it’s to their advantage to mention it,” Washington adds.
By conveying their corporate governance strategies to all types of
investors, companies have an opportunity to gain the type of long-term
shareholders they desire, Silverman says.
Developing a strategy for communicating with investors can be designed with
another added benefit: mitigating the role that proxy advisory firms play in
proxy voting outcomes. For many large companies these firms have substantial
influence on 30% or more of their shares, Washington says.
While it would be ideal if smaller institutional investors did not follow
proxy advisory firms’ recommendations so closely, that’s not likely to
happen. The problem is that having an in-house research staff to evaluate
every proxy ballot is too expensive for many midsize investment funds.
But companies can help curb the influence of these services by taking a more
proactive approach to their communications strategy with investors, experts
An Information Service of
a Financial Times Company