Considerations for Directors When Preparing for Discussions With Shareholders

In brief: Direct engagement between directors and investors is appropriate in some situations, and is even preferred by some institutional investors. This guide, produced by Sidley Austin LLP, provides issues for consideration when creating a board-shareholder communications policy and preparing for a discussion with a shareholder.

This resource can help your board:

• Create a board-shareholder communication policy.

• Comply with Regulation Fair Disclosure.

• Justify boardroom decisions to shareholders.

• Accept feedback from shareholders.

Most relevant audiences: Independent directors, lead directors, board chairs, and general counsels

Source: Sidley Austin LLP. This document originally appeared as Appendix H in the Report of the NACD Blue Ribbon Commission on Long-Term Value Creation (2015).

In most instances management engages with shareholders under the board’s oversight and direction. For example, investor relations and the corporate secretary engage with shareholders on an ongoing basis throughout the year on a variety of issues. Direct engagement between the board and shareholders is less common but may be appropriate in certain circumstances, and some institutional investors favor involvement by directors, depending on the particular issue. Given concerns about securities regulation and the need for the board to communicate in a coordinated manner, individual directors should engage with shareholders only at the request of the board or management. Many companies have adopted policies that underscore the board’s expectations about who communicates for the company. Boards and individual directors should consider the following practical tips when planning their shareholder engagement efforts:

• Ensure policies are clear and up to date.

• Never go it alone.

• Get briefed on discussion topics.

• Study up on the shareholder.

• Articulate justifications for decisions.

• Comply with Regulation FD.

• Actively listen.

• Follow up.

Ensure Policies Are Clear and Up to Date

The board should have clear policies that set forth expectations about who communicates on behalf of the company and on behalf of the board and that describe generally how shareholder engagement requests are approached. These policies should be reviewed periodically to ensure that they are up to date. Periodic attention to applicable policies and procedures assures that all directors are well-informed of the protocols for communication and engagement while reducing the risk of inadvertent communications by individual directors with shareholders or other parties regarding the company. The company’s corporate governance guidelines or corporate communications policy should 1) address requirements related to confidentiality of boardroom discussions and other confidential information; 2) underscore the need to protect material, non-public information from selective disclosure; and 3) clearly specify which individuals are authorized to speak for the company and for the board of directors.