High-profile proxy fights such as experienced at Motorola are helping increase regular communication between boards and IR departments
Nobody has to convince Dean Lindroth of the importance of board-IR communication. Just two weeks after he started his job as head of IR for Motorola in January 2007, legendary shareholder activist Carl Icahn announced he had acquired 6.4 percent of the company. Then he began making demands.
Icahn’s assault led to a proxy fight, throughout which Lindroth co-chaired an internal working group that consulted on how to respond to the campaign and provided communications to the board as often as four times a week. One board member, appointed chief operating officer in the middle of the battle, even participated in roadshows, answering shareholders’ questions about the board perspective.
The results of all the teamwork were apparent when the votes were tallied at the company’s annual meeting: Icahn failed to secure a board seat. ‘We debated the issues on the committee and decided how to frame them as we brought them to the board,’ Lindroth explains. ‘Effective board communications are vital. I think it was a very important part of the overall strategy of the proxy contest.’
Months later, Motorola agreed to nominate two directors backed by Icahn in exchange for a pledge he would drop all lawsuits and discontinue solicitation of proxy votes. Even so, Lindroth’s experience is a dramatic example of an industry-wide trend: regular and direct interactions between IR professionals and their board of directors are becoming increasingly common, and not just during times of crisis.
Some industry sages are advising their colleagues to consider initiating a regular board communication strategy, even during relatively benign times. ‘There are two chief benefits,’ says Jay Steffenhagen, a former IR professional and current chairman and CEO of California-based medical services company HemaCare. ‘The first is of real value to governance, because IROs can help the board understand investor perceptions and expectations about the company. The second benefit accrues to IROs: it helps them become known to the board, which opens up more opportunity for responsibility and advancement.’
At present, regular interaction between IR professionals and their boards are far from the norm. That’s one reason why undertaking a regular communications campaign shouldn’t be taken lightly, says Jay Gould, vice president of IR for Huntington Bancshares in Columbus, Ohio.
At a panel held on the topic at the 2008 NIRI annual conference in San Diego, Gould compared the decision to marrying a third wife, as IR professionals are already ‘married’ to management and the investors. ‘I don’t know what it means to be married to three women,’ he said on the panel. ‘But I imagine it would be the kind of relationship where you have all manner of conflicts and things you have to be careful with. This is politics: you are in the middle. Be sure you can handle it.’
Gould emphasizes the importance of securing management’s blessing before opening up communication with the board, and of being prepared to ‘keep confidences’. Some board members may even ask their IR professional not to share the nature of their queries with management. So it’s important to discuss protocols for such situations with superiors before initiating contact, he says.
Start out small, Gould suggests, with non-threatening information, such as monthly relative stock price performance reports and quarterly changes in stockholder base. He advises a concise and consistent method of presentation that varies little from month to month, so it is easy to follow. ‘Build that list over time as you and management get comfortable with what you are sharing,’ he says. ‘You need to be a candid, reliable source of value-added information.’
Gould provides his board with trends in analyst estimates – whether they are going up or down, changes in ownership, short interest and the key topics on investors’ minds. Most boards also appreciate some insight into analyst ratings, estimates and targets, both Steffenhagen and Gould agree. Providing such context is one way to impress the board.
‘The IRO has a personal relationship with the analyst and can often provide additional insight beyond the written word in the report,’ Steffenhagen says. ‘One way I found success was to not only use this forum to explain how I market the firm to investors and report on who they are and what they think about the company, but also to invite an analyst to the meeting so the board could hear firsthand precisely what investors are concerned with.’
The frequency of communication with the board should vary depending on its needs and the situation of the company. Gould generally sends a monthly email, and urges the board to reply if it would like to know more. He might also present once a year.Steffenhagen recommends giving a report at every board meeting, occasionally to the corporate governance committee, but usually to the finance committee.
Hard times
The frequency of information exchange often changes during times of crisis, however. During Motorola’s proxy battle, for example, board communication was most frequent in the days prior to a major action, such as the issuance of a company press release to counter Icahn’s moves. It generally ranged from once to four times a week, Lindroth says.
Gould has stepped up communication with both management and the board in recent months, as the credit crisis has hit his company hard. In June, negative chatter about the firm sent the stock down from $9 to $5 over a two-week period, prompting Gould to recommend issuing a press release to calm investors. The stock instantly shot up more than $1.
The company was able to move fast on that decision because everyone was up to speed on the situation. That kept Gould busy. ‘You have to keep your feet in the pool all the time,’ he says. ‘I’m spending an exorbitant amount of time now reading press headlines, Bloomberg business headlines and blogs.’
In a crisis, there is more exchange. ‘You do the same thing but with a little more frequent communication with management and the CEO, and the CEO may say, Why don’t you pass this on to the board today?’ Gould says.
Whatever the frequency of communications, brevity and focus remain paramount, with minimum jargon and one or two key points the board members can walk away with. ‘As IRO, you want to know they got the point; you don’t want it buried in the details,’ Gould says. ‘Board members are intelligent people: they follow the firm and have their own antennae out. They don’t need to hear everything. They’re looking to you as the IRO to tell them what you are hearing from shareholders.’
If done right, with management cooperation and with care to avoid political minefields, IR-board communication ‘is one of the best vehicles for you to develop your position within your company to the next level,’ says Steffenhagen.
‘Try to identify one-off presentations you can make either to the board or the management group; strategic retreats of either management or the board are particularly useful. Whatever you do, frame it for board perspective, and work with your CFO and CEO to find a way to get started.’
Wish list
Motorola IRO Dean Lindroth, HemaCare chairman and CEO Jay Steffenhagen and Huntington Bancshares IRO Jay Gould all say directors want the following types of communications:
> Memos that are brief and focused with no jargon
> Reports with one or two key takeaways
> Discussion framed for board perspective
> Trends in analyst estimates
> A synopsis of investor concerns
> Near daily reports in a proxy fight.
