“In this atmosphere where blogs can become viral, you can’t afford to ignore any part of the shareholder community,” said The Honorable Victor H. Fazio, director at Northrop Grumman and Ice Energy at a discussion on board-shareholder communications held at the NACD Board Leadership Conference in Washington, D.C. yesterday. All participants emphasized a need for an open and robust dialogue between boards of directors and their investors in order to exchange ideas and mitigate potential points of conflict.
With this year’s introduction of mandated “say on pay” votes at public companies, “boards need to figure out investors’ concerns,” said Debra J. Perry, director at Korn/Ferry International and BofA Funds Series Trust. “They need to communicate, to reach out and dialogue with major investors, especially when evaluating how the compensation plan stacks up against ISS advisories.”
President of Investor Communication Services at Broadridge Financial Solutions Robert Schifellite noted that a board should not be satisfied with a say on pay vote approved by a simple majority. “The term we adopted is that 80 is the new 50,” explained Schifellite. “When you’re not getting more than 80 percent approval, there’s a sign of a big problem, though it varies with the size of the company.” He also emphasized the need to reach out to shareholders before the vote, in case they decide to sell off their investment rather than waiting for policy change. “Institutional investors vote at 90 percent, while retail votes come in at just under 30 percent. Retail shareholders will vote with their feet, so make sure you are considering all shareholders when reaching out.”
“The 10-K is both a compliance and communication document. Make sure to run in line with the securities laws, summarize what the board is doing, why they are the best people for the job, and why they fit the company strategy,” advised Anne Sheehan, director of Corporate Governance at CalSTRS. The pension fund has found that “quiet diplomacy has gotten us a lot farther” than trying to call companies out in public for unfavorable practices. They plan to distribute 150 letters to the “worst offenders” of the approximately 400 companies, representing twenty percent of their holdings, who raise concerns, mostly regarding the pay for performance alignment.