January, 28 2022

Acing Board-Shareholder Interactions Amid New Challenges

Shareholder interaction is evolving and requires boards, managements and their advisers to rethink investor activities, especially in the digital and virtual arenas.

The governance table is reset.



Board interaction with shareholders is shifting — led by significant technology advances, aggressive regulators requiring added or recalculated information, as well as more transparency in public reports. This is followed by renewed activist engagement and media coverage.

The environment will continue to evolve over the next year and require boards, management and their advisers to rethink shareholders’ activities, especially in the digital and virtual arenas.

Imagine this.

It is a bright, sunny, spring day as your company’s annual general meeting is just minutes from starting.

In addition to the expected dark-suited board and executives attending in person or seen virtually, are a typical mix of shareholders: employees rehearsed to ask specific questions or second motions; retired personnel and couples counting on continued dividends; a few favorably disposed institutions; assorted gadflies and activist groups that own one share of stock ready to be recognized; and as a collection of industry and business media covering the event seeking news.

Annual meetings are a legal obligation. Nevertheless, they serve as the most visible interaction between boards and their shareholders.

For annual meetings, many companies have moved to a virtual shareholder meeting format. A small percentage choose a hybrid approach of in-person and virtual meetings. Fewer host only in-person meetings.

Virtual shareholder meetings spiked the last two years due to pandemic restrictions and advanced by technology supporting greater investor participation. And new leading-edge programs have eliminated most glitches and created ease of use for shareholders.

Virtual shareholder meetings now allow annual general meetings to be livestreamed with audio and video, authenticate attendees, permit shareholders to interact for questions and answers, as well as vote their shares.

Virtual meetings inspire greater shareholder participation because they allow investors with time constraints or travel restrictions to attend, participate and vote from home through multiple channels. Additionally, they lower travel and meeting costs, as well as the carbon footprint.

More Participation, Preparation and Litigation

This movement to virtual meetings ups the ante for boards, management, corporate advisers and staffs. It’s not your father’s annual general meeting anymore.

As virtual shareholder meetings increase, shareholder participation grows each year — which is good for company investor interaction and smiled upon by regulators. Yet, this growth trend of increased involvement creates more risk, as it will require different and increased preparation for company boards and management as new, diverse groups join in corporate governance activities.

Additionally, the U.S. Securities and Exchange Commission‘s new directives and requirements, as well exchanges expanding rules, are affecting this proxy season with focus centered on different issues emphasized by the current administration and ensued by media coverage. Capital markets have become a tool to drive social agendas.

Key changes include: environmental, social and corporate governance and board diversity; climate change; risk factors; and shareholder proposal initiatives, among others. Crusader groups are jumping on the bandwagon and will be active in the governance space during this proxy season and well beyond.

Key changes include: environmental, social and corporate governance and board diversity; climate change; risk factors; and shareholder proposal initiatives, among others. Crusader groups are jumping on the bandwagon and will be active in the governance space during this proxy season and well beyond.

In a December issue of Roll Call, reporter Ellen Meyers wrote
Activist shareholders may have the upper hand in holding companies more accountable on environment, social and governance issues next year, thanks to a combination of pressure from BlackRock Inc. and other institutional investors and proxy voting rule changes at the Securities and Exchange Commission.

And, if you can envision it, expect an even more active SEC in the months ahead. Paul Kiernan of The Wall Street Journal on Jan. 19 wrote
SEC Chairman Gary Gensler spent his first nine months on the job sketching out ambitious plans to tighten federal regulation of Wall Street. Now, the clock is ticking for him to implement his agenda. With Democrats at risk of losing their thin majorities in the House and Senate after November’s midterm elections, the coming months could be critical.

And not unsurprisingly, all this increased scrutiny will indeed lead to new areas of expanded litigation and costs.

Do Not Expect a Quiet Annual General Meeting Season

Usually, during the annual meeting season, there is one issue that dominates news headlines, eclipses preparation and creates enormous angst during the meeting for boards and management.

Yet, with the S&P 500 up more than 70% in the last three years combined, most company equity valuations are at all-time highs. Therefore, compensation will not be a hot topic this season.

Actually, there will not be one topic that captures emotions and headlines this year. Rather, there will be a series of themes that will need crafting and rehearsals as pointed and precise questions will be put forward not only to the board chair, but to committee chairs and management as well.

Issues raised at annual general meetings this season will primarily involve either national or international affairs, while others will depend on industry or geography. And you can guess regulators will be monitoring company responses closely, looking to highlight, criticize or worse.

Issues that will pop up include:

  • The impact of COVID-19 and omicron variant, their effects on business and workforce, as well as impact on the strategic plan;
  • The ability to attract and retain talent in this era of disruption and employment movement;
  • Diversity of boards and management;
  • Minimum wage and using low-wage workers in foreign countries;
  • Cybersecurity and ransomware; tech data and privacy issues;
  • The pandemic supply chain disruptions;
  • Rising costs and inflation; conducting business in regions with controversial government policies, such as in the Middle East or South America;
  • Trade and tariffs’ effect on earnings; doing business in states such as Texas that have passed controversial laws, and several others.

Finally, the board chair and chief executive officer might be asked what they think is the company’s most immediate threat, its biggest opportunity, and how the board and management have organized to address them.

No Surprise Questions

Back to the virtual shareholder meeting, inquiries are queuing up and active. Then, without warning, a cascade of pointed questions, coordinated and in aggressive tones, demand rationale behind board actions.

Questions should not be a surprise. They are not hard to find. You just need to know where to look.

Unlike the past, almost all questions or issues raised at annual general meetings have been posted and vented on social media and other platforms for months by various constituents, advocacy groups and unions, disgruntled current or former employees hiding in the shadows, investor groups looking to change strategic focus, as well as those seeking exposure for their special issue.

We noticed this year, campaigns against corporations no longer take a week or two to gather steam before the annual general meeting. Instead, we see coordinated, deliberate movements kick off several months prior to the annual general meeting that are designed capture engagement, make headlines and try to affect company policies.

Boards should be briefed and rehearsed — not only with the playbook of questions and answers, but for context on background and color of what has been happening in the social and public arena regarding the company’s presence the prior six months.

Back to Basics With a Contemporary Twist

Have you heard speakers read blatant boilerplate answers to shareholder questions? Frustration grows quickly as one after another questioner hears corporate speak slurped with legalese.

What should be a crucial moment in solidifying the company’s standing among its owners can turn into an acrimonious affair that adversely affects reputation.

With this anxious backdrop, questions on an array of issues now dominate the meeting, overshadowing reports of improved earnings, new products and other initiatives — particularly company stock performance trends the past three years. Contemporary or difficult issues require boards to address questions in new ways.

When I played football as a running back, every day the coach would have us focus on the basics, over and over again. He was a terrific coach. Boards and management also need to refocus on the basics, as well as embrace contemporary strategies and techniques to engage shareholders in this digital, challenging and changing environment.

Preparing for a virtual presentation requires a significantly different approach than an in-person meeting.

Any sports fan knows the experience is vastly different when they watch a game on television, as opposed to sitting in the stadium.

The digital environment also requires distant coaching for the corporate team. They must be trained to deliver messages over a medium that requires skills to connect to shareholders and viewers through a camera lens.

This focus includes:

  • Craft messaging that resonates with constituents in line with the company’s mission. All commentary should be consistent, spoken and written in simple English — as if you were explaining information to first-year college students — not in corporate speak or legalese. Avoid acronyms or industry jargon.
  • Prepare likely questions and answers for several diverse groups who will have distinct yet contrasting questions — investors, customers or clients, advocacy groups, unions, and others.
  • It’s hard, but develop positions, answers and commentary from a listener or reader prospective. The writer should not write for an audience of themselves, lawyers or management.
  • With the wide use of virtual shareholder meetings, anyone can easily capture audio or video on computer screens. Online platforms empower everyone to see, hear and have access to information. Clips and commentary can be posted and accessed instantly and forever from a mobile device.
  • Before the annual general meeting, provide background briefings under embargo for key media that will provide voice to the company story when writing about the meeting or activities. You will also develop a good contact.
  • Rehearse, rehearse and rehearse again. And then rehearse twice more on camera — both scripts and Q&A.
  • As part of rehearsals, in this virtual format, board members, management and others should be cognizant. Put on your best poker face, avoid eye rolling or poor body posture, which undercuts important messages, compassion or sincerity.
  • Take a page out of the political debate playbook by training the board chair, key committee chairs and management to interact and provide commentary with important constituent groups and media following the meeting.

Board members or corporate leaders would not appear at a deposition or trial without being very well-prepared. Poorly crafted responses have potential to damage the bottom line, reputation or equity valuation. Similarly, anyone who speaks on behalf of the company at the annual general meeting, or at any time, must know precisely what to say, as word choices must be carefully vetted in advance.

New Era of Increased Responsibility and Transparency

Today, board members no longer serve in relative anonymity.

In a recent discussion with Alan Guarino, vice chair of Korn Ferry, he talked about how boards have changed.
The days of boards being composed mostly of former CEOs are over. Now boards look to assemble a mosaic of skills, a less homogeneous mix of talent, including sitting and retired executives with expertise in digital media, risk management, global business, marketing, accounting and audit, as well as cyber. That make up provides a range of expertise and information for management and the board to draw from and rely on.

Some leading companies have processes in place to allow shareholders and others to communicate directly with the board. Some of these functions are outsourced to specialty firms, whose focus is often on the reporting of misdeeds or similar actions, and not on shareholder issues or communications.

Directors must carefully and systematically review the level, content and tone of all shareholder inquiries and more importantly, evaluate responses within their responsibilities of oversight. With contemporary issues changing and emerging, automatic responses and obfuscation will receive swift and harsh responses in the digital environment.

With this backdrop, boards should be prepared to communicate a solid rationale for actions they take in an intensifying environment of new scrutiny. How will announcements of decisions be received by sophisticated investors, their fiduciaries, as well as play in Peoria? Are board members comfortable and confident with answers and the way they were presented?

Regrettably, boards must operate in a context where focus is not only on disclosable items today, what may be made public in the future, but also, how issues evolve in the public arena.

Crafting a Communications Approach

As the world invades the boardroom, it’s important to craft and develop public approaches appropriate to industry, company and national culture, but with a dose of 21st century reality applied. That means comments and documents are in simple English, as noted earlier. This is a continuing essential command presence theme.

Changing Focus in an Increasing Complex World

For more than 25 years, Fortune magazine has conducted its “America’s Most Admired Corporations” study and quality of management has clearly been the most important attribute.

In the immediate years ahead, it is clear that the quality of the board of directors will be an important new point of measurement for security analysts, investors, rating agencies, bankers and others.

In this digital world, constituencies are demanding more from public company directors. While oversight responsibilities must continue to be the board’s primary focus. Directors, like CEOs of recent years, will need to be prepared to understand and spend more time dealing with public issues.

About the Authors:


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