The promise of direct engagement in corporate governance

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Every two years, I survey 50 governance and IR professionals from Glass Lewis’ investor clients and the public companies with which we’ve engaged, asking them to suggest the keys to successful engagement and to identify the pitfalls to avoid. This year’s survey finds substantial improvement in the quality of dialogue between issuers and their shareholders.

‘We’ve come to common ground and [it’s] not as contentious as it once was. Greater transparency is on the rise,’ says one investor. That said, both sides agree there remains room for improvement. What follows are the key insights and suggestions from this year’s survey.

Setting and planning the meeting

Timing – Companies should not wait until an issue arises to reach out to shareholders. Off-season engagement is critical to building trust. It should occur regularly, with frequency and timing to be agreed upon by the company and the shareholder.
Agenda – Whoever issues the invitation should draft the first version of the agenda and solicit input from the invitee. The agenda should precisely reflect the goals of the meeting. An ‘I want to hear what’s on your mind’ agenda is a waste of time.
Participants – Investors want to meet with senior independent directors and/ or chairs of key committees. ‘It is helpful for assessing the quality of the board and its processes,’ says a large global investor.

The agenda should dictate exactly who participates. If climate change is on the agenda, the person speaking on it should be familiar with the material and have accountability on the topic. Also, Reg FD is not a legitimate excuse for denying shareholders access to directors.

Preparing for the meeting

It’s best to keep the advisers, consultants and solicitors out of the room; they can distort or distract from the value of direct dialogue between companies and their owners. Companies should be prepared to meet with ESG and investment professionals (portfolio managers or analysts) at the same time because they increasingly collaborate on engagement.

Finally, companies and shareholders should have a clear and shared understanding of desired outcomes of the meeting: relationship building, developing a better understanding of a shareholder’s position, educating the shareholder on a subject that is important to the company – including any unique circumstances – or discussing an upcoming vote.

Before meeting with shareholders, companies need to do their homework. Read their position papers or speeches on ESG matters. Understand first-hand their proxy voting policies and stewardship priorities. Review their website. Analyze their voting history. Identify where you are aligned and where you may not be.

Do’s and don’ts

Make sure you arrive on time – not early, not late – and come prepared with questions that reflect a specific understanding of the shareholder’s stated policies, priorities and voting history. When the shareholder answers those questions, listen – really listen – to what is said.

Engagement is about dialogue and there’s a lot of value in listening to shareholders that look at many companies in addition to yours and possess perspectives that may provide new or useful insights not being discussed in your boardroom. Both shareholders and companies want to increase shareholder value, so companies should not be afraid of investor input.

It’s also OK for companies and investors to disagree. But as one of the wisest executives I know in corporate America advises firms in her response to this year’s survey, companies should ‘never, ever’ use the meeting to present a PowerPoint. ‘This is a gift. Recognize its wisdom,’ she says.

Both sides should do a post-mortem to assess whether the meeting’s desired goals were achieved. Provide a frank, thorough summary for board members who could not attend. Consider how to enhance disclosure to provide shareholders with progress reports addressing issues of interest to them.

Engagement should be supplemented by an enhanced proxy statement, financial statement and website disclosure on any issues of concern to shareholders.

Emerging trends in engagement

As chief executive of a firm that conducted formal meetings with approximately 1,500 companies globally over the last year, I know about the challenges all parties face as they scale engagement. In my view, the dominant trend is the adoption of technology to assist and enhance that effort. That’s why Glass Lewis acquired Meetyl in 2014. Meetyl’s webbased platform addressed the conflicts and inefficiencies inherent in the typical corporate access process.

Earlier this year, Meetyl launched CG Direct, which applies the same approach but is designed specifically for corporate governance professionals. It helps  companies and shareholders identify and connect directly with the right people, prepare effectively for meetings and report on the outcomes of such activities at a lower cost and higher return than the laborintensive and expensive methods most corporates use today.

CG Direct includes live and transparent corporate governance contacts, voting histories, engagement policies, meeting logistics and scheduling, with additional analytics and workflow tools relevant to each user so each can target, scale and optimize its own engagement and stewardship activities.

We’re so confident in our vision for the future of shareholder engagement that IR Magazine readers can join thousands of existing users and experience it today at no cost by requesting a meeting with Glass Lewis analysts using Meetyl at meetyl.com/engage.

This article appeared in the summer 2017 issue of IR Magazine