Among the myriad reasons why a company should engage its shareholders on a regular basis, simply fostering a good long-term relationship with key investors is on top, according to a new
Fenwick primer on shareholder engagement for public companies. Highlights from the guide include the following:
- Reasons to Engage. Chief among these is generating goodwill, which gives shareholders long-term context for a company’s pay decisions that ultimately leads to improved trust. This “relationship capital” will come in handy when a shareholder proposal or other crisis looms on the horizon. Other reasons to engage:
- Defense against activist investors. Shareholders may be less willing to support an activist campaign if they know the management team well and trust that they listen to investors.
- A low Say on Pay vote. Any company receiving a low level of support, even without a failed vote, should engage with shareholders to seek feedback and, if necessary, make changes. If a company receives less than 70% support (for ISS) or 80% support (for Glass Lewis), proxy advisors will expect additional engagement to be disclosed in the proxy for the following year. Failure to do so could result in recommendations against directors.
- Timing of Engagement. Investors frequently note that off-season engagement is the most productive unless there are special circumstances such as a shareholder proposal or negative proxy advisor recommendation.
- Prioritizing Meetings. Most companies focus their engagement on their largest institutional shareholders – the guide suggests reachouts could be focused on investors holding greater than 50% of outstanding shares, or the top 25. Engagements should be carefully tracked so that investors that have not met with the company can be prioritized in future years. Another interesting suggestion: target shareholders that opposed Say on Pay in previous years.
- Engagement Team. Companies should tailor the engagement team based on the purpose of the meeting, involving General Counsel/Corporate Secretary, CHRO, and Investor Relations as needed. If the meeting involves executive compensation, some investors will request the Compensation Committee Chair be present and that the CEO not be present in order to assure a productive meeting. The Head of Total Rewards may be present during such a meeting, but the board’s compensation consultant may not be as welcome.
- Preparation and Meeting Tips. The guide provides a slew of good recommendations such as researching the investor’s proxy voting guidelines and public statements ahead of time, holding mock sessions with advisors to practice, sending an agenda for the meeting (typically 30-60 minutes), and conduct a meeting debrief internally to assist in presenting a summary to the board and crafting necessary disclosure.
The guide closes with a final reminder to consider Regulation FD when engaging with shareholders, which prohibits companies from sharing material non-public information with one investor but not all of them. This is a particular risk if board members or other participants less well-versed in securities law are engaging.
