Boards: Understand Your Shareholders

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In addition, if the company has a proxy solicitation firm on retainer, I would recommend having the proxy solicitor come to speak annually as well, certainly to the Governance Committee and probably to the full board. Experienced proxy solicitors tend to have a handle on shareholder issues that go beyond what the internal investor relations people can provide because they are in Annual Meetings day in and day out; this is what they do for a living. Many proxy solicitors act for dissidents as well as for companies in proxy contests so they can give you the dissident perspective on many issues, also. For example, they should review your shareholder base before coming to a meeting with the board and can tell you, "This is what we've seen this particular shareholder do on this issue in the past." These can be very useful insights for board members to have. If the company does not have a proxy solicitation firm on retainer, the committee should discuss with management whether it might be important to do so.

What is your view on board members interacting with shareholders directly?
This is an area where I'd urge some caution. I think board members should view direct interactions with shareholders primarily as an opportunity to listen. Being on calls with the analysts and that sort of thing are wonderful opportunities for board members to hear directly from shareholders what their issues might be. But it's important to remember that board members don't speak for the company. The CEO speaks for the company. Not only do you want to avoid any confusion or mixed messages, board members also need to be careful about potentially infringing Reg FD (Regulation Fair Disclosure) in any communication they might have with shareholders. This is a regulation that prohibits disclosure of material information to some shareholders that is not disclosed to all shareholders. For example, if a board member attends a meeting with one or two major shareholders and inadvertently begins discussing a new company strategy in answering a question in that meeting that has not been disclosed generally, you've got a serious problem.

Some companies have adopted the practice of having a board member—often the chairman, lead director, or chair of the governance or compensation committee—attend an investor meeting once or twice a year. I think this can be a good practice, and many investors really like it, but you just need to make sure that the board member is properly briefed. That briefing should cover not only Reg FD and other legal matters but also what the company has said on various issues in the past that might arise in this meeting.

Beverly Behan has worked with more than 85 boards of directors over the past decade on issues including CEO succession planning, board engagement in strategy, board and director evaluation and general consulting to boards and CEOs on maximizing board effectiveness. She can be reached through her website: www.boardadvisor.net.

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