What to Know About Director & Shareholder Communication

Communication between board members and shareholders is a fine line for some organizations. In some cases, it is important to keep this open line of communication and in others, there is no way for shareholders to voice concerns. This is a practice that reaches back to the 1920s and is not something new by any means. However, in more recent years, tech titans such as Google and Facebook have applied the same practice and issued non-voting shares. According to Ken Bertsch, the Executive Director at the Council of Institutional Investors, who recently appeared as a panelist at TheDeal’s 2017 Corporate Governance conference, Google set up this framework for Silicon Valley companies.

So, when Snap, the parent company of Snapchat, went public in March of 2017, they also issued non-voting shares, which means that investors are buying into a CEO’s vision for a company without having a say in any of the business operations. While not a new tactic, this creates an interesting dynamic. Another panelist at the conference, Marc Travino – partner at Sullivan & Cromwell LLP – said that if shareholders don’t like the situation, they can just decide to sell the stock, which is one way of voting and showing displeasure, while also affecting the overall value of the company.

This news will always remain significant because it shows how company boards may need to consider keeping a direct line of communications with their investors. Regardless, many boards as a whole hesitate to communicate directly with shareholders because board members believe this is the job of investor relations. Despite the argument against this, many boards are realizing the push for augmenting communication channels is something they cannot ignore.

“As year-round shareholder activism becomes the new norm in the American boardroom, directors are called upon to prepare for and respond to any possible activist challenges,” according to the National Association of Corporate Directors.

Why Corporate Governance Matters

In the corporate governance world, this shift towards opening board-to-shareholder communications is important for several reasons:

  1. Many large asset management firms are known for conducting significant due diligence when it comes to casting its shareholder votes each year. Those votes are often in accord with the expectations of the invested company. Therefore, when a large investor vetoes something, it’s big news and can signify a dramatic change.
  2. Some investors feel they can’t get the access necessary to learn more about a company’s strategy and capital allocation plans. To make their position known, they veto board directors who want to limit communications to the investors.
  3. Boards should prepare for shareholder activism. Whether it’s more transparency on how a company’s business impacts climate change, market strategy or other concerns, shareholders are becoming more vocal about their demands.
  4. Shareholders can take matters into their own hands and sell stock options, which will change the overall value of the stock, causing eyebrows to raise in the marketplace due to fluctuation.

Directors’ Perceptions

The majority of directors, 85 percent, believe the intentions of activists are too focused on short-term performance, according to a NYSE/Evercore/Spencer Stuart survey. However, directors are well aware of the rise of shareholder activism. While some directors may not agree with them, a majority, 63 percent, of directors believe in designating a committee or specific individuals to interact with large shareholders, according to the NYSE/Spencer Stuart report.

With the recent increase of shareholder activism, informed boards need to effectively communicate with shareholders to mitigate any disruption or negative impact on the organization, its brand and potential revenue. Boards can no longer live in an insular environment. What follows are some suggested best practices for board of director to shareholder communication strategies.

Tips for Better Communication

  • Define roles, responsibilities, and policy. Choose which directors should communicate with shareholders, and how. In many organizations, an Investment Relations Officer, who reports to the board, is the main point of contact. The IRO handles inquiries from shareholders and investors.
  • Determine topics to address. Is the agenda handled by the company secretary? If not, board members may get a deluge of shareholder questions of varying importance. A board secretary can help streamline the process to ensure the important questions get answered.
  • Determine preferred communication channels. What is the most effective way to conduct communication between directors and shareholders? What is the most effective way to communicate between directors so all key stakeholders are on the same page? A digital board portal can offer just this type of ideal channel.
  • Remember it’s a two-way street. It’s important to have a dialogue between the board and shareholders. Even if opinions differ, there might be some strategic insights learned from the discussions.

Before any company board member communicates with shareholders, it’s imperative that the board has a strong communication foundation already in place. A board portal can facilitate director communications, scheduling and access to the most updated materials, higher levels of control and visibility as well as other benefits.


For more insights on effective board communications, please read the Diligent white paper 10 Practical Guidelines to Improve Board Communication.

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