New Rules Require Better Board Communication

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“By adopting these rules, we will improve the disclosure around risk, compensation, and corporate governance, thereby increasing accountability and directly benefiting investors,” Chairman Mary Schapiro said in her opening statement at yesterday’s Securities and Exchange meeting.

The rules will be in effect by the 2010 proxy season and could be published as early as next week.

Do boards understand that they are being challenged to communicate more openly with their shareholders?  Better communication gets to the heart of many of the governance issues that the SEC and the pending legislation hope to address.

So what’s a board to do?

Boards should think in concrete terms about what they have communicated with their shareholders in the past and how they can improve the clarity of communication.They should avoid legalese and adopt plain English in their discussion about risk, compensation and governance.

Greater disclosure is about clarity.  Boards are in a communication battle they can win if they recognize the element of respect in their communication with the company’s owners.

Boards Should Show Leadership in Corporate Governance

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With unprecedented interest in corporate governance, the Chicago NACD Chapter panel of Holly Gregory, Fred Steingraber, Donna Zarcone and William Atwood  addressed Changes in Regulation and Implications for Directors.

Panelist  Fred Steingraber, former Chairman and CEO of AT Kearney and director of several US and several international boards, said the time for boards to react was over.  Rather, boards should take a leadership position by demonstrating that they provide value through their oversight through transparency and better shareholder communication.

“Boards are in the midst of a very serious struggle to regain respect and control over  their growing responsibilities and image,” said Steingraber.  “To accomplish this will require demonstrating the will and capacity to make changes ranging from board organization/leadership, policy, process, committees, board composition to shareholder communications. They must now demonstrate leadership at the board level with a results orientation in the conduct of their work.

“Today,  the government is taking control of boards, largely due to directors not building good relations with shareholders and all too frequently being too defensive and too reactive in their communication.”

Boards need to break their silence to retain and regain control rather than ceding authority to critics.

Not only do boards need to listen to  shareholders to understand their concerns, but they also need to go beyond the derivative information that they normally receive to drill down to the underlying issues of business performance, said Steingraber. “Boards need to put together a longer term program that addresses the issues of succession planning and risk management.  This will not happen overnight.” For that reason boards need to lead by creating a  framework for change and communicate those changes, which will take place over time.

Dodd’s All Out Approach to Corporate Governance

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Senator Christopher Dodd (D-Conn) introduced his 1,135 page bill, Restoring American Financial Stability Act in the  in the Senate Banking Committee with the goal of  “creating a sound economic foundation to grow jobs, protect consumers, rein in Wall Street and prevent another financial crisis.”

While many measures are drawn from Senator Charles Schumer’s (D-N.Y.) Shareholder Bill of Rights, this greatly expands the scope.

Just last week, David Gergen, American political consultant and presidential advisor during four administrations, opined about the state of the economy at the Council of PR Firms’ Critical Issues Forum according to Weber Shandwick’s Chief Reputation Strategist, Leslie Gaines-Ross in her Reputation Exchange blog.

What a message for corporate boards to take the initiative to build trust by engaging with shareholders with effective board-shareholder communication programs.

Reaping the Benefit of Shareholder Communication

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While Bonnie Hill has distinguished herself in many ways as a board member, it was her willingness to meet with shareholders that made her a leader.

“I have never had a shareholder group ask something that was inappropriate,” said Hill. “They are aware of Regulation FD. We may not always agree but I think it’s very important to listen and sometimes  agree to disagree. We have learned so much from talking to shareholders.  It’s made us better directors. Continue reading →

Directors Can Bypass the Proxy Advisory Firms

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In light of the SEC’s ban on broker voting, there is considerable concern about the conflicted business model of proxy advisory  firms such as RiskMetrics, which provides proxy voting recommendations to institutional investors along with a proprietary governance rating while an arm of RiskMetrics sells advice on how companies can improve governance scores.

Directors shouldn’t spend too much time railing against these firms. Rather, it’s time for boards of directors to bypass these groups and review their own governance policies including charters, bylaws and compensation rules so that they are well versed on the company’s corporate governance policies. At the same time, boards should develop an understanding of its shareholders and their concerns. Continue reading →

The Importance of Finding Common Ground

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In the face of the changes that are coming to corporate governance,  boards would be well advised to begin their examination of  the input they receive from shareholders and stakeholders  by looking for  common ground.

A synonym for input is contribution.  Imagine if boards saw the comments and suggestions that they receive from shareholders as the way that shareholders want to contribute to the improvement and long-term strength of the company. Continue reading →

How Should Boards Adapt to the Ban on Broker Voting?

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Ralph Ward of Boardroom Insider asked how boards should handle the ban on broker voting.

Naturally, boards will want to analyze the broker element of the proxy voting for their company. Yet any outreach to shareholders by the board should begin with a board-shareholder communication plan. Continue reading →

Boards Have a Window of Opportunity

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SEC Chairman Mary Schapiro sees proxy access rules as the way to give shareholders a greater say on choosing directors and a credible path for ousting boards.  Directors have reason to be concerned. It’s clear that some form of proxy access will pass.  However, this is not a time for directors to wait and see. Rather, this is a clarion call for boards to respond strategically rather than wait to comply.

Wednesday’s Wall Street Journal describes the campaign by law firms, associations and companies to derail or weaken the current SEC proposal, which makes it easier for shareholders to nominate directors. Continue reading →

Practicing What He Preaches

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Proving that no good deed goes unpunished, Chairman Emeritus and CEO Emeritus of AT Kearney Fred G. Steingraber became president of his village of Kenilworth last spring.  Little did he know that problems with transformers exacerbated by turbulent summer thunderstorms would wipe out electricity for extended periods in this elite North Shore village. Not only did Steingraber return every irate citizen’s phone call but he used the web in addition to newsletters to communicate what he, the town staff and ComEd were doing about the problem. In setting up a town meeting with ComEd, he scheduled it for October , not only to give ComEd time to resolve some of the issues but to enable all interested citizens to attend without having to readjust their August vacation schedules. Continue reading →

Boards Can Combat Voicelessness and Helplessness

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What has fueled the activism of shareholders in the past 25 years? We know that periods of flat or negative growth, flat or negative profitability and low stock growth can drive  traditionally passive institutional shareholders to activism.  (In fact, according to Shareholder Activism Insight, the likelihood is 79 percent.)

But long-time participants and observers in the corporate governance community think it’s much more basic: it’s a sense of voicelessness and helplessness felt by major institutional investors. These shareholders believe they suffer from lack of access—to the directors, to information. This  “under-representation” feeds some activists’ demands to be recognized as owners, whether it’s advocating for “say on pay”, majority voting and in even a battle for board seats. Continue reading →