The discussion about direct shareholder-director engagement has never been livelier. Large institutional investors have articulated their desires for increased shareholder-director engagement. As more investors become interested in the prospect of communicating directly with boards, it is important to consider the framework for those discussions. Philip Richter is co-head of the mergers and acquisition practice at the international law firm Fried, Frank, Harris, Shriver & Jacobson, where he represents clients in M&A transactions involving both public and private companies, proxy fights, and unsolicited proposals. Here, Richter answers questions about the when, who, and how of director-shareholder engagement.
How do you decide when to engage with shareholders?
Due to time constraints, it is not feasible to meet with every shareholder that requests to engage with the board. A screening process should take place to determine which shareholders to engage. In determining whether to meet with a requesting stockholder, directors should consider a variety of factors, including:
If during the screening directors determine that engagement is not appropriate, the screening members should discuss with management and other directors, as applicable, an appropriate response to the requesting stockholder and the person to deliver the response.
How do you decide who does the engagement?
If the board determines that directors should meet with stockholders, they then need to decide who should participate in the interaction. The board should:
Having outside advisors such as legal counsel, investment bankers, or consultants attend stockholder-director engagements is generally counterproductive. Other than in the context of an unsolicited activist approach, the inclusion of professional advisors in meetings with shareholders should be rare except when requested and then agreed upon by both parties.
How should you prepare for the engagement?
In preparation for the meeting, participating directors should: