Frequent Women in the Boardroom webinar contributor Brendan Sheehan offered valuable information during our past webinar ‘What Public Board Members Need to Know About the Investment Community’. Some of the tips he gave us included:
It is common to hear from board directors and others that the investment community doesn’t really care about corporate governance, however that is not the case anymore. In fact, it has become a very important part of the overall investment decision-making process, both on the buy and sell side in terms of recommendations that they make. Specifically, the expectations around communication and engagement have changed. It is rapidly becoming the norm that individual directors and collective board members communicate directly with shareholders. Sheehan told us that in his previous role as managing director at Rivel Research Group, he found that 76% of buy-side investors polled (from a pool of 370), said they have considered corporate governance when making a decision to sell a stock and 61% of global investors said they did not buy a stock over concerns about the board and the proxy voting rules. Overall, Sheehan said, “When we asked the same set of 370-odd investors the most important drivers in their investment decisions, they told us: management credibility, effectiveness of the business strategy and reliable cash flow.”
QUALITY OF GOVERNANCE MATTERS, TOO.
Sheehan explained that when researching this topic, Rivel asked the study group what specifically mattered about governance and they compiled the top six quality factors that were important from an investment perspective: 1) Disclosure, 2) Transparency, 3) Strong, objective board 4) Management linked to pay performance 5) Separation of the chairman & CEO role 6) Established plan for management succession. Ultimately, these things matter because the trust required to invest in a company all comes back to the quality of how the board operates and runs.
While it is management’s job to be proactive and engage, it has become best practice for occasional engagement between the director of a board and the shareholder community. Sheehan says, “If you are on a board where you aren’t engaging at all, you should probably find out why.” He further explains continual engagement means listening to investors, transparency, keeping an open line with international holders, staying up to date with trends, and being informed on how shareholders vote, just to name a few. In data collected by the New York Stock Exchange in 2014 and published in 2015, it found that about half of the S&P 500 companies disclosed some sort of engagement process with their shareholders. Sheehan recommends reaching out three times a year as best practice: once at the annual meeting or during the proxy solicitation period, once during the post-vote review, and one other time not tied to anything specifically as a means of added communication.
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The opinions and experiences expressed do not necessarily reflect those of Women in the Boardroom.