It can be difficult for a Board of Directors to gauge how, when, and where to communicate directly with their investors. Yet Director-to-Investor communication is important — and increasingly expected. How should Directors respond?
Historically, Directors have typically kept investors at arm’s length. Fearing regulatory violations and excessive shareholder influence and being somewhat protective of their time, Directors have often been extremely cautious about direct communication.
Meanwhile, investors have been content to stay largely deferential, allowing their holdings to be managed with little to no say in the overall operation of the public enterprise. But ever since the 2008 financial crisis, shareholders have stepped up demands for better direct engagement with directors, culminating in an open letter from the Shareholder-Director Exchange (SDX), a group that collectively holds $10 trillion in assets — and somewhat unsurprisingly, these new lines of communication are finally opening up.
So why are directors so wary of directly engaging their investor base? Well, according to the New York Times, there are actually a number of reasons:
Some directors fear that regular meetings with investors could undercut their management teams, whose operating authority may appear diminished. Others prize the appearance of unanimity, believing that individual Director communications could compromise the board’s ability to “speak with one voice.”
In fact, many Directors feel increased communication may open the door for more mistakes, such as accidentally disclosing sensitive information, violating confidentiality, or even breaching Federal regulations, including Regulation Fair Disclosure (Reg FD).
Investors, on the other hand, are the ones calling for change. Many activist investors, including Carl Icahn and William Ackman (whose profile is provided here by Forbes), have long demanded a higher degree of direct communication between shareholders and directors, but they have been (and remain, to an extent) outliers.
Institutional investors are typically more respectful and submissive to a company’s Board of Directors, meaning they’re less inclined to harry them for more information or deeper insights.
True, the 2008 financial crisis exposed deep issues within corporate management infrastructure, leading to an across the board cry for greater communication between Directors and investors, as the OECD Observer notes. But the old culture remains thoroughly entrenched within the existing system, and many directors are left with the same questions: Is more communication always a good thing? And how much is appropriate?
There are definite benefits to having direct engagement between a Board and its investors. According to Corporate Secretary, in structural business transformations, such as mergers or go-private situations, transparency and solid communication from board members can gain credibility and reaffirm faith amongst institutional investors.
Moreover, by explaining the rationale behind major decisions, board members can tamp down disquiet and confusion, endowing shareholders with the knowledge and insights they need to confidently relay company actions to skeptics. Finally, if a company is facing a crisis or bad press, directors can provide comfort to concerned investors, possibly reducing growing levels of unrest.
The benefits of solid investor communication are clear, but there are still no defined rules or regulatory guidelines dictating a minimum level of communication between Directors and investors. Most agree that engagement should be carried out on a case-by-case basis. Though the trend is relatively new, a set of best practices has begun to emerge in recent years.
Designating specific members to speak with investors is a helpful first step, and establishing company policies beforehand is key. Investors should only be allowed to speak with these designated directors if initial questions are unable to be effectively addressed by managers.
Before your next shareholder meeting, make sure you have a concrete plan if Board members apart from the Chairman are going to be engaging directly with investors and other stakeholders. This plan should include cohesive messages and responses crafted in conjunction with major internal stakeholders, including the CEO, company secretary, general counsel, and other relevant members of the management team.
Potential investor concerns should be researched in advance, and important talking points and disclosure history at the ready. Whenever possible, incorporate investor feedback into your presentations and forthcoming policies. A little advance planning goes a long way when it comes to enhancing the level of engagement between directors and potentially disenchanted investors.
Technology Can Help
Directors must ensure that they are utilizing all of the tools at their disposal in order to bridge the communication gap and remain in-step with the expectations of today’s tech-savvy shareholders. As the mobile platform becomes increasingly intertwined with modern business best practices across every industry, a growing number of companies are recognizing the value of mobile apps as a tool for the effective and proactive dissemination of important information.
Today, industry-specific apps, such as ShareholderApp, are helping IR professionals and board members alike effectively meet their investors’ demands for more transparency and engagement. With its diverse set of powerful features, ShareholderApp offers instant, one-touch access to important filings and announcements, corporate documents, and share price information at multiple levels of discretion.
Through the app, companies can take the first step in giving investors what they want: a direct channel of engagement developed primarily for them.
(Main image credit: Indigo Skies Photography/flickr)