Communicating directly with shareholders is a vital role that the IRO fulfills within a company; however, shareholders are increasingly bypassing the IRO and going straight to the directors for answers. There are many reasons for this such as the rise of shareholder proposals, “say on pay” initiatives and a push for proxy access.

Whatever the reasons, shareholder/board interaction poses challenges for IR professionals – such as exposing the company to legal liability through information inadvertently divulged which highlights the fact that boards need to be re-educated on their company’s disclosure policies.  Even more importantly, the aforementioned may underscore that a formal board communication policy needs to be put in place.

While shareholder/board interaction poses challenges for IROs, it also provides opportunities to take ownership and control over how the board interacts with shareholders.

What follows are some of ideas from the “How to Icahn-Proof Your Board” session, which discussed how IROs can strengthen the BOD’s role as an active, informed and engaged fiduciary to shareholders.

BACK TO THE BASICS
Formal communication policies should be established – having something in writing alone is not effective by itself. Directors should be trained on Reg FD and the IRO should be the one to do so.  The IRO should also keep the policy current and proactively reach out to the board to ensure they completely understand the document. Ultimately, the IRO should become the “go-to” person to address any questions.

Outline specific procedures for handling investor inquiries – if a board member is contacted by a shareholder, have them take down the contact information nature of the inquiry and immediately inform IR.  That way, a discussion can be generated on whether this person has called the company before.  It also gives the company (i.e. IRO) time to gather information about this shareholder.  It may well turn out that this person is a known activist investor, who is testing the company to see if they get a consistent answer from the IRO, management and the board.

APPRISED OF KEY ISSUES
Oftentimes, directors sit on several different boards – which can make it difficult for them to stay on top of all key issues for each of the companies they serve.  One way IROs can help, is to put together a comprehensive information package.  At the very minimum, the IRO should provide an overview of the company’s shareholder base, how it’s changed, the questions being asked and any concerns that have come to light.  When I was an IRO, I did a quarterly update report which was disseminated to the board.  If there were any questions, they knew they could call me for clarification.

However, as mentioned, some shareholders may ask several different people within the company the same question to see if they get a consistent answer.  Sometimes, this may happen around a particular company event such as the annual meeting.  In light of this, IROs should also take steps to ensure that their board is appropriately updated on the proxy issues.

Other events that may promote a call from an activist investor could include poor stock performance, a change in corporate strategy, executive compensation and poor performance compared to your peers.  In my opinion, IROs should stay on top of (and keep the board apprised of) any changes to the company’s strategy and executive compensation.  As stock performance (in general and in relation to your peers) is not predictable and various factors can influence trading, it is not advisable to bombard your board or management with updates every few hours.  You can opt to inform them of any sharp declines/trends in a timely manner and reserve general commentary regarding the stock’s performance in your quarterly report.

Lastly, in addition to key issues, the board should know what the company’s general business objectives and strategies are and what information is in the public domain and available for them to discuss publicly.

INCREASE ROLE & MAXIMIZE BOARD EFFECTIVENESS
The panel also discussed some tactics IROs can use to help their board be aptly prepared when speaking with shareholders.  For example, having a member of the board attend analyst meetings will help them get in tune with the kind of questions the company is fielding.  Even further, it may be effective for the board to answer some of the questions at these meetings.  Executive compensation is a particular area where they could provide valuable insight – as executive compensation is set by the board – and their response may seem more credible and well-informed than that of management.

Further, as IROs become more involved with training the board and taking the lead on implementing and writing the board’s communication policy, they will get a sense of which board members are good communicators.  This is beneficial, as these particular members can be used to speak to shareholders in advance of proxy votes for example.

NEW COMMUNICATION CHANNELS
When shareholders reach out to the board, oftentimes they just want to be more engaged in dialogue with the company.  The increased use of social media has made it easier for shareholders to contact the company in general.  IROs should take note of what board members are using which social channels.  This should then be incorporated into the formal communications policy so there is no room for misinterpretation on how to deal with shareholders using social networks.

By taking a proactive stance in educating your board about good disclosure practices and taking the lead on training, IROs have an opportunity to control how their board interacts with shareholders.  This is beneficial on many fronts: it can alleviate any potential compliance issues for the company by having streamlined communication policies which specifically outline what the board can and cannot say; and it establishes the IRO as a credible source and go-to person in instances where there is confusion about how the board should deal with shareholders.

It doesn’t matter whether you’re dealing with retail or institutional shareholders.  Taking the time to ensure that your board is responsive and well prepared to handle investor inquiries has many benefits to you as the IRO and ultimately the company.

Related posts:

1. NIRI ’09 Session: Understanding IR Strategies Behind XBRL – IROs Evolving Role
2. #irchat: October 21 Recap: Board/Shareholder Engagement & Communicating with Shareholders in the Upcoming Proxy Season
3. Former NIRI CEO Lou Thompson talks Reg FD and Social Media Disclosure
4. Effectively Communicating Say on Pay to Shareholders
5. NIRI Fundamentals re-cap: A ‘Play Book’ to Help IROs Better Deal with the Buy Side

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