Ir | Street Talk | Dix & Eaton

For an article that Rachel Posner (general counsel of Georgeson) and I wrote for the January/February 2011 issue of The Corporate Board, I asked Holly J. Gregory, a partner with Weil, Gotshal & Manges who was recently named to the National Association of Corporate Directors’ “2010 Directorship 100” (in other words, as the kids back in Revere would say, she's "wicked smahhht"... she's also surprisely nice for such heavy hitter), what Boards could do now to ready themselves for the new rules of engagement.

Here's what she suggested:

1.    Ensure that senior management and directors are up to speed on the new requirements and understand the heightened pressures. Adjust board and committee calendars to ensure sufficient time to tackle the new requirements. (Authors’ note: it is also important to provide regular updates – and allow time for discussion – on new requirements.)

2.    Ensure that the company’s investor communications policy is up-to-date and well-understood by directors, senior management and investor relations personnel to coordinate the corporate messaging used with internal and external audiences, protect boardroom confidentiality and comply with Regulation FD in an effective and efficient manner.

3.    Ensure that information systems and communications programs are in place and  enable management and the board to monitor changes in the nature or activism of the company’s shareholder base, as well as identify and respond readily to shareholder concerns in a responsible and timely fashion.

4.    Because the influence of proxy advisers is likely to continue to grow with the advent of say-on-pay and proxy access – and these advisers have been very receptive to “short slates” of directors nominated by activists – be well-versed on the “hot button” issues among your company’s institutional investors, as well as the proxy adviser positions for these  issues. Likewise, it will be critically important that the board, the management team and its advisers be well-prepared to articulate and defend the company’s particular rationale wherever its approach departs from these positions.

5.    Before the corporate secretary begins drafting this year’s proxy, the company should conduct a thorough review of last year’s proxy materials and the analysis conducted by any proxy advisers to see if this year’s materials can be more effective in communicating positive steps the company and board have taken.

6.    Consider amending the “advance notice” provisions of the company’s bylaws to provide that any timing or other provisions of the bylaws that would be pre-empted by the pending proxy access rule would not apply to access nominations. Director qualification requirements should also be considered. In practice, there may be objective, minimum requirements for board membership that have not been stated in the bylaws as director qualifications. The board may now wish to formalize these in the bylaws and consider whether any additional qualifications would be appropriate in light of the fact that access nominees could be seated without being vetted by the nominating and governance committee of the board. Finally, review majority voting provisions to ensure that the customary exception for election contexts is broad enough to encompass access nominations.

7.    Evaluate the company’s executive compensation program and disclosures from a shareholder perspective, recognizing that they will be put to the test in say-on-pay votes. Focus once again on whether there are any compensation elements that may lead to inappropriate risk-taking or misalignment between “pay” and “performance” and how the program matches up to proxy adviser guidelines. To that end, take a fresh look at this year’s Compensation Discussion & Analysis (CD&A) to ensure it explains the company’s compensation philosophy in a clear and convincing way, how its compensation processes are conducted, and “why” specific compensation decisions have been made.  Demonstrating the independence of the company’s compensation processes also will be important to reflect in the CD&A content.   

8.    Similarly, review compensation committee membership and advisers to determine whether any changes are likely to be needed to pass future independence tests.  For example, assess the current compensation committee under the audit committee independence tests. In fact, a general conflict-of-interest disclosure criteria should be applied to all consultants to the board as a safeguard.

9.    Consider whether to recommend to shareholders a say-on-pay vote every one, two or three years and the rationale for the recommendation (e.g., a multi-year timeframe for measuring the attainment of incentives).

Additionally, directors should be actively instructing their management teams to view the proxy season as a campaign rather than a contest. In other words, in today’s environment, companies should be engaging in an on-going discussion with investors throughout the year on strategic and governance matters, rather than look to plead their case only in and around the mailing of the proxy materials. Waiting too long to engage investors in an insightful discussion on such critical issues as the company’s progress toward its “desired future state” of financial and operational performance, the company’s unique growth catalysts, its value-creating track record and potential over the long term, or the benefits of  its particular governance practices can have dire consequences for the company as activist investors will use this void of information to harvest their near-term (and typically self-serving) agenda.

Next week, we'll take a look at what an IRO can and should be doing to properly position his/her company for the upcoming proxy season. In the meantime, I'd be curious to hear what your Board and managment team is focusing on at this point as it relates to the upcoming proxy season.

By and large, I thought the panel turned out to be an interesting session. Though, like so many recent debates about IR and technology, I came away from the session with a sinking feeling that the more we talk about web disclosure, the more adamant the advocates will get and the more resistant the doubters will get.  Oddly enough, I remain somewhere in the middle - I'm a big proponent of the use of technology for IR purposes, yet I have not heard anything still changes my belief that web disclosure may not be for everyone (and I think it's okay if it's not for some companies). Frankly, I wish the IR community would spend half as much time talking about ways to improve the quality of the content in disclosures as it is talking about the various of distribution channels for disclosures. Just feels to me like we're putting the cart before the horse in some respects.

Anyway, back to the topic at hand... if you find yourself in the middle on this topic as I do, here are just some of the questions that I think you should be asking yourself and your colleagues:

1) How strong and reliable is our company's current Web server and IT function? You'll need enterprise-level hosting and accessibility, plus mobile access. You'll also need a contingency plan in the event of a server outage.

2) Do we have the internal resources - both from a time and knowledge standpoint - to handle the issuance of timely disclosures? Believe it or not, there are many companies that still want their communications firms to oversee the dissemination of corporate news as they simply cannot afford any added distractions the morning of a major announcement. 

3) Is our IR website a recognized channel of disclosure (i.e., do you have a Reg FD compliant website)? I suspect this is/will be the biggest hurdle for most companies... and, sadly, it seems to be also the least discussed as most folks - particularly those with a dog in the fight - want to debate cost savings or system security or distribution scope and reach. All important considerations, but none relevant if the site isn't FD compliant.

Have you heard/seen anything relating to web disclosure lately that's swayed you in one direction over another? Are there other considerations you are weighing?

"Who cares?" you might say. Well... for one thing, Mrs. B does. And, if she cares about it, you can be darn sure I care about it!

"What's this have to do with investor relations?" you ask. More than you might think... I spoke to my colleague, Matt Barkett, who oversees our crisis communications practice, and he had an interesting take on it.

According to Matt, the Stern contract negotiations should be an important reminder to all companies - especially publicly traded organizations - that there is a real and powerful relationship between employee retention and market valuation. Admittedly, most employees are not as high profile as King Howard. That said, the loss of a key employee can translate into revenues lost to stronger/new competition, a disruption in R&D pipeline or a slowdown in product commercialization, among other things - all of which can cause swift and immediate downward pressure on a company's stock. This is even more true during periods of organizational stress (read: crisis).

Can you imagine what this chart might have looked like if Sirius had lost the Stern show? I bet you William Prip and Hooper Stevens can.  And I bet you they spent a lot of time framing a new value proposition for investors had Howard and his "wack pack" ridden off into the sunset together. 

Be curious to hear what contingency planning you've done relating to investors around key employee retention... like some many things, it's better handled in a time of stability than a time of crisis.