IR Magazine recently collaborated with sister publication Corporate Secretary on a think tank exploring themes common to IR and governance
The IR Magazine Corporate Secretary Think Tank – Midwest 2012 was held at the Chicago offices of law firm Neal Gerber & Eisenberg in November 2012. It marked the first time IR Magazine and Corporate Secretary have teamed up to produce a think tank specifically designed to address the convergence taking place between investor relations departments and the corporate secretary.
Several panel discussions demonstrated how IR professionals, corporate secretaries and general counsel are combining best practices in governance, corporate strategy, communications know-how and salesmanship to keep investors properly engaged while reducing overall risk for corporate boards of directors.
Joining forces
The first panel, entitled ‘Managing governance year-round: the increasing need for collaboration and co-ordination between IROs and corporate secretaries,’ featured Georgeson president David Drake, SunCoke Energy’s investor relations manager Lisa Ciota and Allstate senior attorney Megan Pavich.
The session emphasized that with the scrutiny of corporate disclosures increasing, it is important for both IR professionals and corporate secretaries to work together to communicate effectively with the key decision makers at institutional investors and proxy advisory firms.
Ciota advanced the concept of using what she called a ‘listening tour’ to personally meet with key shareholders and find out their concerns on compensation and other governance matters. ‘We heard what investors wanted to change in June, then went back to them later and recommended changes we were willing to implement,’ she said.
Drake emphasized that year-round engagement is necessary because increased scrutiny from proxy advisers ISS and Glass Lewis means companies that don’t make swift adjustments to their governance practices will be viewed as non-responsive to investors. This, in turn, can often lead to negative voting recommendations or shareholder action.
He said companies should be more proactive about the concerns of shareholders and proxy advisory firms instead of reacting to negative news. ‘If you wait to engage shareholders on a reactive basis, your possibility of getting a positive response in that small window is very low,’ he said.
Pavich said corporate secretaries should work with IROs to gain more insight into what investors want and how they are likely to vote on certain issues – key information that can be passed to the board. ‘The investor relations department may know more about who has the voting authority,’ she explained – adding that this is critical information if a proxy vote is imminent.
Social skills
The think tank’s second session, ‘Social media briefing: a skeptic’s guide to who’s using it and why you should care’, featured a presentation by Sean Chinski, director of US small and medium-sized business sales for Marketwire, who gave a detailed demonstration on how social media analytics could be useful to corporate legal departments.
Chinski explained how social media monitoring can be used to find out how the release of certain company information (such as a new product) has been received or to determine what the general public is saying about a company and whether it makes sense to respond.
For example, Chinski noted that prior to a company earnings call, ‘you can find out what people are discussing so that you can develop talking points for the call.’ If you find there are negative issues being discussed, ‘you can strategize how to handle this publicly.’
Chinski also pointed out that the analytics from monitoring social media during a crisis can help companies get ahead of a potential public relations disaster. He explained that knowing how people are reacting to something in real time can help a company to shift its message to what people really care about.
The final session, ‘The evolving shareholder base: implications for both governance and investor relations’, featured Chris Taylor, executive vice president and managing director of global investor relations at Ipreo, Robert Macklin, Hill-Rom Holdings vice president and associate general counsel for North American operations and M&A, and Blair Rieth, vice president of investor relations at Hill-Rom Holdings.
The panel discussed how potential changes in the make-up of the shareholder base of public firms might affect the overall governance of those companies.
Taylor said the trends suggest that most companies have given up on attracting retail investors: retail shares of the average company have declined from about 15 percent to 13 percent in recent years. This shift means institutional investors now have much more influence over director votes, which can have an influence on the governance of companies.
‘Having less retail ownership could be considered a positive because you don’t have to worry about those votes not being cast and sitting on the sidelines,’ said Taylor. ‘But those votes are transitioning to institutional investors that may not be as supportive [of management] as the typical retail investor has been historically.’
The recent shift in overseas investor ownership also has governance implications because ‘institutional investors outside the US don’t vote with the frequency and emotion of those inside the US’, so management could lose some votes there.
Communication is key
Rieth noted that the level of trust and respect between the investor relations team and the legal department is often taken for granted, so when shifts in the shareholder base occur, communication about the type of change and what should be done to react appropriately to it doesn’t always happen smoothly. Rieth and Macklin both emphasized that determining new strategies to deal with a changing investor base need to be a highly collaborative effort between both departments.
‘I would value a sort of ‘push and pull’, and if you want to call it tension, that’s fine,’ Rieth said. He added that, disagreements aside, he sees the input from legal as ‘a very different but valid perspective I can learn from.’
Collaboration is particularly critical in writing the proxy statement. Macklin noted that IR and legal should really work on the disclosures that will appear in the proxy statement all year long.
‘To the extent that we can write good disclosure and have good themes throughout the year, it can influence the stock price positively in a way that is compliant with the law and also allows the IR team to present our story in such a way that the shareholders like it,’ Macklin explained.
When shareholders like corporate disclosures, stock prices generally rise and, as Macklin pointed out, ‘a high-flying stock price is going to cure most of the governance ills we may have.’
This article also appears in the February 2013 issue of IR Magazine’s sister publication Corporate Secretary.
IR Magazine Think Tanks are invitation-only events for select groups of corporate IROs. The next one will be held in Palo Alto, California on April 4. Find out about that and other upcoming think tanks in London, Toronto, Chicago and New York at www.irmagazine.com/events.
