Now that governance issues seem to be dictating more shareholder actions, corporate secretaries at small and mid-sized companies might want to consider putting together a ‘governance roadshow’ before next proxy season to defuse any potential problems with investors. In a worst-case scenario, being at odds with investors on governance issues could trigger a hostile takeover or a vote to oust directors.
Francis Byrd, senior vice president and corporate governance/risk practice leader at Laurel Hill Advisory Group, Jeffrey Morgan, president & CEO, National Investor Relations Institute and Kenneth Wagner, vice president, assistant general counsel and assistant secretary at Peabody Energy Corporation, discussed the governance roadshow idea at the Society of Corporate Secretaries and Governance Professionals conference in June.
Now might be the time to begin preparing to engage shareholders with such an effort – especially since the recent stock market slide is likely to make the largest investors even more edgy.
The purpose of this kind of roadshow is to help companies reach out to large investors and discuss governance matters before they become an issue. Morgan suggests travelling to visit key investors during the off-season to keep communications open and to develop relationships that may come in handy later. During proxy season, they may not have time to see you.
Byrd thinks corporate secretaries should ‘identify the shareholders who are pushing on governance and try to engage them. It makes sense to know what their issues are.’ In addition, adds Byrd, ‘This will help you prepare the board to deal with the governance issues most important to the shareholders.’
Wagner believes companies should be willing to prepare directors to sit down with the largest investors and answer their questions on compensation and other governance topics. Investors want to know that directors are knowledgeable and involved, so ‘it can be helpful,’ he says.
Ultimately, a governance roadshow can help the board determine which investors are likely to vote with them on governance issues, and alert the directors to areas where they may need to make policy adjustments before investors lose confidence in their ability to lead the company. Being proactive is always better than waiting for a crisis to develop.
[Article by Matthew Scott, Corporate Secretary]