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For more detailed statements of the views reported below of Deborah Gilshan, one of the leaders of the "Fifth Analyst Call" group, and Karen Kane, a board communications advisor advocating corporate adaptations of the proposed communications, and also for responsive comments, see

Note: Timothy Smith, also quoted below, serves as a member of the Forum's  Program Panel for the "E-Meetings" public interest program that has been addressing related communications issues.


IR Magazine | Inside Investor Relations, April 4, 2011article


Inside Investor Relations

Debate rages over fifth analyst call

4 Apr 2011

The so-called fifth analyst call is dividing opinion in the investment community

An international investor group’s proposal for a so-called ‘fifth analyst conference call’ on governance issues has aroused remarkably passionate reaction among shareholder communication cognoscenti. IROs informally polled at IR magazine’s recent West Coast Think Tank poured scorn on the idea of an invitation-only meeting co-chaired by an investor.

For its part, the corporate bar is also balking. An influential article in the New York Law Journal called on companies to ‘resist this proposed new obligation’, its authors questioning the call’s use as a source of information while warning of a looming Reg FD minefield.

For now, it seems the vast majority of companies remain untempted; call proponents report just a handful of ‘fifth call’ meetings scheduled for April. Still, they point to recent US corporate governance developments and remain confident the time is right for change that engages.

‘Under Dodd-Frank reforms and new SEC rules, investors have a greater obligation to ask boards questions and hold them accountable,’ says Alexis Krajeski, associate director of governance and sustainable investment at F&C Investments. ‘We feel the best way to do that is with an actual dialogue: talking to directors and listening to their response.’

While companies may be looking for inventive ways to communicate with shareholders, this approach to director/shareholder engagement is a little too creative – and potentially dangerous – for some observers, including Jason Hille, associate at Foley & Lardner.

‘Unless [the call is] highly scripted and webcast, directors can be put in a tight spot with respect to complying with securities regulations,’ he explains. ‘At the same time, bringing directors into a position where they can answer questions on the nuances of governance policy would entail significant preparation time which, to my mind, would be better spent elsewhere.’

IR veteran Gene Marbach, group vice president of Makovsky + Co, agrees. ‘You’d need an army of people and days of preparation and rehearsal time,’ he cautions. ‘And you wouldn’t end up saying much more than is already painstakingly detailed in the proxy statement.’

Compensation confuses director
Marbach also fears negative repercussions beyond flubbing FD hurdles. Highlighting the unstructured nature of the Q&A as the most ‘dangerous’ part of a conference call, he foresees an otherwise savvy director answering erroneously, meandering or being led into off-agenda territory – or worse, resorting to the all-purpose response, ‘I don’t know. I’ll get back to you’.

‘The next day’s newspaper headline would read, Directors unsure how compensation arrived at. There goes your corporate reputation,’ Marbach says. He advises companies contemplating a call to be hyper-prepared and only put people who already have experience with the Street in the game.

Jeff Morgan, president of NIRI, presents another, potentially more prudent engagement option: sending the IRO and corporate secretary on an off-season face-to-face tour with institutional governance and portfolio managers.

‘That way, besides helping institutions understand a company’s governance philosophy, the firm hears investor concerns ahead of time and can address them in the next season’s documentation and information,’ he says.  

Still, fifth call advocates insist the ‘people in the room’, virtual or otherwise, must include directors. ‘At the moment, investors do not have another forum within which they can communicate directly with the directors meant to represent them,’ notes Krajeski. She says the fifth call concept was a response, in part, to confusion around obscure disclosure relating to say-on-pay votes.

‘The current process means we can’t ask those questions directly to the remuneration committee unless we are voting on the spot at the meeting,’ she observes. ‘Requesting a fifth analyst call in advance of the AGM lets us better understand the remuneration structure and cast more informed votes.’

Deborah Gilshan, corporate governance counsel at Railpen Investments, one of the UK’s largest pension funds, says discussions of proxy and annual report disclosures are standard practice in a wide variety of markets. ‘We feel it benefits investors to have access to an independent director to discuss compensation, leadership structure and other governance issues,’ she says.

She dismisses concerns about Reg FD risk. ‘We recognize it’s a consideration for companies but it shouldn’t be a barrier preventing directors talking to their shareholders about corporate governance,’ she observes, pointing to the SEC chairman’s hands-off position on communication around the proxy statement. ‘After all, they may not be writing the actual individual disclosures but company directors should take some responsibility for what’s being put out in public documentation.’  

Gilshan’s group of more than a dozen institutional investors anticipates a call of 60-90 minutes would include active institutional shareholders, governance and equity analysts in discussion with the independent board chairman or lead director.

Other participants could include chairs of key board committees, the corporate secretary, general counsel and IRO. At the outset, proxy advisory firms would not be invited. The call itself would be hosted by issuers and co-chaired by the company and a ‘lead investor’. The agenda would be confined to the proxy statement including additional Dodd-Frank resolutions.

The group believes the various burdens of a fifth analyst call would be outweighed by the efficient communication of ideas between directors and a variety of shareholders not mediated by proxy advisers or lawyers.

‘We frequently hear companies say they are misunderstood by proxy advisers and, because of the nature of shareholder registers, they don’t always get the chance to speak with beneficial owners,’ says Gilshan. ‘This is one way of bringing investors directly to the directors who represent them to have an honest conversation without the need for a middleman.’
From disclosure to engagement
At least one middleman thinks that’s just fine. ‘[A fifth analyst call] provides companies with an additional avenue for investor communication that lets them talk directly with investors rather than having information filtered through groups like ours,’ says Pat McGurn, special counsel at RiskMetrics Group’s ISS governance services unit. ‘Issuers should take advantage of the opportunity to directly engage with their stockholders.’

McGurn admits to being taken aback by what he calls the ‘negative, almost visceral reaction by some elements of the corporate bar. The SEC is saying, Where there’s a will, there’s a way. But some have gone beyond pointing out issues that had to be addressed. They seemed to attack the concept itself.’

All this may just be an attempt by restive shareholders looking for a public forum to vent grievances, or an opportunity for boards to explain policy, directly ascertain shareholder issues and decide how they want to engage. It may also be a symptom of proxy statements growing longer rather than better. It’s probably a bit of all three.

But in a communications environment moving from disclosure to engagement, diligent companies will find unique ways to facilitate meaningful communication between shareholders and their directors.

‘Companies are less reluctant to engage shareholders these days,’ observes Tim Smith, senior vice president at Walden Asset Management. ‘That comfort level has led to a variety of new approaches and several companies have thanked us for suggesting this [fifth call idea]’.  

‘This is a great opportunity for companies to gain direct control of communication with institutions and beneficial owners,’ adds Karen Kane, Chicago-based principal at Karen Kane Consulting. ‘Any problems are in the details and maybe we need to go through a few calls where the worst case doesn’t materialize.’

Ultimately, says Kane, shareholders just want to know there is an independent board looking out for their interests. ‘Sure it will require preparation,’ she says. ‘But reestablishing trust means directors have a greater obligation to be more forthcoming. And shouldn’t those paid to represent shareholder interests be able to discuss the company’s governance framework?’


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