Corporations and their shareholders: Keeping the lines of communication open

Sure, corporations have their obligations, but what about the duties of shareholders? When it comes to engaging with the companies they’ve invested in, are shareholders being pro-active enough?

Corporations are often said to have obligations to shareholders and other constituencies, including employees, the communities in which they do business and government, but these obligations are best viewed as part of the paramount duty to optimise long-term shareholder value. Shareholder value is enhanced when a corporation engages effectively with its long-term shareholders, treats its employees well, serves its customers well, fosters good relationships with and appropriately oversees its major suppliers, maintains an effective compliance program and strong corporate governance practices, and has a reputation for civic responsibility.

Over the past several years, some shareholders have expressed interest in having more input on matters affecting the corporations in which they invest. Corporations should productively engage with their long-term shareholders in a manner consistent with the respective roles of the board, management and shareholders. Corporations should be responsive to issues and concerns that are of widespread interest to their long-term shareholders. Corporations also should take steps to educate shareholders and other stakeholders about the board's role and its oversight responsibilities.

Corporations should encourage shareholders to make voting decisions based on consideration of what is in the best interests of the individual corporation and its shareholders. Meaningful involvement of shareholders requires that shareholders make company-specific judgments and consider the interests of the specific corporation. In this regard, a corporation should consider additional outreach efforts as appropriate to explain the bases for the corporation's recommendations on the matters it is asking shareholders to vote on, including advisory votes on executive compensation.

Shareholder value is enhanced when a corporation engages effectively with its long-term shareholders, treats its employees well, serves its customers well, fosters good relationships with and appropriately oversees its major suppliers, maintains an effective compliance program and strong corporate governance practices, and has a reputation for civic responsibility.

Communication with shareholders is an important component of effective engagement. Corporations communicate with investors and other constituencies in proxy statements, annual and other reports, and shareholder meetings. Corporations also communicate through informal avenues of communication, such as earnings releases, conference calls and investor meetings. Corporations should consider other appropriate mechanisms to solicit shareholder views. These may include periodic meetings with the corporation's large shareholders or other outreach to obtain feedback from long-term shareholders about particular issues.

Shareholder value is enhanced when a corporation engages effectively with its long-term shareholders, treats its employees well, serves its customers well, fosters good relationships with and appropriately oversees its major suppliers, maintains an effective compliance program and strong corporate governance practices, and has a reputation for civic responsibility.

Corporations should carefully consider the views of shareholders, but keep in mind the duty of the board to act in what it believes to be the best interests of the corporation and all its shareholders.

Corporations should take advantage of technology to enhance the dissemination of information. A corporation's website should include copies of the corporation's governance principles, the charters of its board committees and its codes of conduct. Corporations also should consider posting biographies of directors and members of senior management, information about current committee memberships, copies of the corporation’s articles of incorporation and bylaws, information about communicating with the board and information about the corporation's annual meeting.

Corporations should have effective procedures for long-term shareholders to communicate with members of the board and for directors to respond in a timely manner to the concerns of long-term shareholders. Technology can facilitate these procedures. The board, or the corporate governance committee, should oversee and update these procedures as appropriate.

Corporations should use the annual shareholder meeting as an opportunity to engage with shareholders.

Directors should attend the corporation's annual meeting of shareholders, and the corporation should have a policy that directors attend the annual meeting each year, absent unusual circumstances. Time at the annual meeting should be set aside for shareholders to submit questions and for senior management or directors to respond to those questions.

The board or its corporate governance committee should oversee the corporation's response to shareholder proposals. The board should seriously consider issues raised by shareholder proposals that receive substantial support and should communicate its response to proposals to the shareholder-proponents and to all shareholders. 

It's a brave new world in the digital age, companies and shareholders should be more pro-active with an engagement model facilitating better two way communication providing positive outcomes. 

Henri Eliot is chief executive of Board Dynamics, a consultancy company which provides strategic advice to directors and boards throughout New Zealand and Australia.