Today’s boards of directors are expected to engage with their shareholders outside of the annual proxy statement—and that expectation is heightened as investors become more active in company governance. The charge for more engagement is largely led by today’s institutional shareholders, who want a better understanding of the organization’s long-term strategy and the plan for achieving it.
Not only are investors doing a better job communicating their expectations for shareholder engagement, but boards are answering the call—and they’re also recognizing the value of these interactions.
While the concept of shareholder engagement seems relatively straight forward, communicating with shareholders can be a process with many nuances:
How and When to Engage: As boards ramp up their shareholder engagement efforts, they must remember that one size doesn’t fit all. Active managers will have different informational needs than passive managers, while specific shareholders will vary in their priorities and engagement philosophies. We outline several guidelines for shareholder engagement that today’s boards can follow.
Navigating ESG: Several of today’s largest investment firms (including BlackRock, Vanguard and State Street Global Advisors) are placing a strong focus on ESG (i.e., environmental, social & governance). These firms feel that ESG issues are at the core of long-term value creation and risk mitigation at today’s companies. For boards of directors, the broad focus on ESG can feel all-encompassing or ambiguous—and often leaves boards wondering what to prioritize. Boards should avoid getting caught up in the semantics of ESG and instead focus on the big picture: communicating the company’s purpose and prioritizing strategies that positively impact all stakeholders.
Leveraging the Proxy Statement: While the proxy statement is a regulatory requirement, it can also serve as an effective tool for shareholder engagement. As investment firms request more visibility into the boardroom, the proxy statement can be a valuable mechanism for telling the board’s story around CEO pay, diversity, board evaluations or ESG–and how all these pieces relate to the long-term strategy. Donnelley Financial Solutions’ Guide to Effective Proxies provides best-in-class examples for nearly every section of the proxy statement—from ESG disclosure to skill matrices.
Successful shareholder engagement efforts will require boards to have the right information at their fingertips. How does your board composition or CEO pay compare to your peers? What skill sets is the board lacking? What conflicts of interest might your investors have uncovered? Quick access to information helps board members identify governance red flags raised by shareholders and activists.
Diligent Nominations, a platform accessible within the Diligent software, presents this data to your board through a proxy advisor’s lens. For a deep dive on the compensation benchmarking, CGLytics (the leading data provider for Glass Lewis) offers advanced compensation modeling tools to power better board decision-making.
- Shareholder Disclosure Requirements and Checklist
- Board of Directors’ Fiduciary Duty to Shareholders
- What Are the Board of Directors’ Responsibilities to Their Shareholders?
- 5 Investor Expectations for Shareholder Engagement
- The Changing Dynamics Between Investors & Boards
- Providing Your Nomination & Governance Committee with the Right Tools
- Interlocking Directorates and Recruiting Board Members
- How to Handle Interlocking Directorates