We hosted our third Building Blocks for Successful IR in San Francisco. Based on customer feedback, we built the event around these issues: governance, market structure, social media, disclosure, and buy-side dynamics.
Governance Highlights - TK Kerstetter, president of Corporate Board Member, moderated a terrific panel with speakers Jim Copland, director of the Manhattan Institute’s Center for Legal Policy, and John Siemann, president and partner of Phoenix Advisory Partners. We are half way through the 2011 proxy season, and these panelists had interesting views regarding the hottest topics today and what’s on the horizon.
What You Should Know:
Have a well informed idea if your institutional shareholders follow ISS, Glass Lewis or have an internal policy. There is always going to be a group that will vote in line with ISS, but there is an emerging trend that institutions are setting their own guidelines.
Know who votes and how. Written Consent Proposals are on the rise. Institutions don’t want to know WHAT, they want to know WHY. So use your proxy statement as a marketing document, not just a compliance tool. Gone are the days when having stellar financial performance kept the activists away from your door step. Even stock market darlings such as Apple are feeling the pressure.
Executive pay – be aware of the companies that had low shareholder support. While executive compensation is an advisory vote, it’s a signal of dissatisfaction and the sentiment will not go away. In fact, at a recent hedge fund conference, many attendees said they are targeting companies that had 51%-70% vote on compensation.
In the past, companies didn’t have a significant number of shareholder proposals – those days are over. So get to know you shareholders – and do not wait until proxy season. This is a 365 day effort.
Proxy Access has a lot of support in Washington. Again, get to know your shareholders and how they vote. Majority voting – 70% of the Fortune 100 and 34% of the S&P 500 have majority voting. Be aware that institutions have made it clear that they are targeting the companies that don’t have this policy.
In keeping with the board and governance topic, Maureen Wolf, president and partner at Sharon Merrill Associates, noted that now more than ever, preparing your board to communicate effectively with shareholders is critical. Topics that are most appropriate for the board to address with shareholders include: CEO evolution and succession, executive compensation and your company’s nomination and election process. Create a board communication policy and assign a board spokesperson.
There is a new trend called the “5th Analyst Call”, largely to address governance issues. Here are some of the topics that you may consider discussing. If you incorporate this concept into your governance or IR program, remember to follow Reg FD rules and make the call available to all investors. Sets Governance Framework and Philosophy Audit and/or Risk Committee Report Summary CD&A Discussion Board Structure, Effectiveness, and Succession Planning Board Position on Shareholder Proposals A Response to Any Negative Recommendations.
Maureen also cited interesting statistics from a recent white paper entitled "Shareholder Activist Insight" by David E. Rosewater, partner at Schulte Roth. If you haven't read this, see my blog post from April 26 for a copy.