February 19, 2015

Governance Roadshow Upsides, Downsides & Success Factors

In the context of increased investor interest and activism in corporate governance practices, governance roadshows are no longer deemed to be solely crisis-driven – i.e., they should be among the several tools companies may consider in the ordinary course to enhance their rapport and posture with major institutional and other investors.

This recent blog does a fine job of identifying upsides & downsides of governance roadshows, or – more broadly – engaging with investors’ governance teams, as well as discussing several recommended “success factors” assuming a decision to proceed with engagement.

Potential upsides include:

  • Seeking direct input from governance experts will help the board make informed decisions on governance matters and emerging issues (e.g., board tenure, board diversity, proxy access), and can also limit the surprise of a future vote.
  • Creating a forum for companies to explain their rationale and philosophy on governance matters may in turn help influence the way investors vote.
  • Direct engagement will allow companies to establish a personal relationship with proxy voters – theoretically facilitating future discussions and mutual understanding.
  • There is an expectation that activist investors are themselves communicating directly with investors’ governance teams so as to further their own proxy-voting objectives. So company engagement is viewed as a preemptive measure.
    Potential downsides include:

  • Many companies don’t dedicate enough time to their core IR programs – so adding new responsibilities and yet more meetings to the annual schedule is difficult.
  • Investment firms’ governance departments are usually small and historically weren’t staffed to accommodate meetings with executives from all of their portfolio companies. As a result, big companies are getting an audience, but smaller companies – those that may also have serious governance issues to be discussed – can be boxed out.
  • Governance-side meetings are viewed by some as a waste of time, because proxy votes often follow a formulaic policy – if not the exact recommendations of the proxy advisors.
  • Opening up a dialog about controversial governance topics may have unintended negative consequences. If a governance expert takes a meeting and makes a suggestion around a specific bylaw or issue, the company will be expected to respond or make changes. If they don’t, it could worsen the relationship rather than improve it.
  • Possibility that starting a dialog may raise issues to the attention of busy governance experts that were previously under the radar or unconsidered

Understanding Governance Engagement from the Investor POV

In this article, CamberView Partners discusses key considerations relevant to successful governance engagement including investor diversity, identifying the most appropriate company participants for engagement, and the fact that such engagements commonly involve a 2-way dialogue – topics that were also very effectively addressed by Vanguard and BlackRock in our recent “Governance Roadshows” webcast.

Here are some of the many key insights from our webcast:

Sarah Goller, Senior Manager, Vanguard: First, there’s no one definition for governance roadshow or what we as investors want to get out of it. I think the one common denominator is that we always want a productive exchange. Firms like BlackRock and Vanguard hold shares of thousands of different companies in meaningful amounts. So we do hundreds of engagements every year, and it’s important that they’re productive.

It can vary a lot by meeting, but we always want to gather information. We want to understand what’s important to the company, what’s changing about the business, what changes they are thinking about on the governance front, within the board or about compensation, and understanding their rationale for those changes. Beyond that, we always want to be asked for feedback.

So we always want a call or a meeting to have a purpose. Maybe you’re thinking about a change. Maybe you’re thinking about something that will impact governance at a board and you want to hear what we’re saying.  It’s also important to define the agenda in advance. We want to have a clear purpose for the meeting and the right sort of people at the meeting. We want the meeting to allow us to exchange information, to listen to each other, and then to provide us with the opportunity to give feedback.

Michelle Edkins, Managing Director, BlackRock: When it comes to considering who in senior management attends and represents the company, I think companies need to be more thoughtful, without wishing to offend anyone, about not having people with a very traditional mindset, where you just do meetings with shareholders to broadcast the company’s message. That’s a real missed opportunity to hear shareholders’ views, and to listen for things perhaps not said. It’s important to hear shareholder’s views on issues and clarify what shareholders don’t understand about the company. Often that’s quite a significant factor, especially if in six months’ time there is an event where that lack of understanding means that the outcome is not optimal for the company.

In my experience, the role of the Corporate Secretary is becoming increasingly important in those “listening” meetings, rather than “broadcasting” meetings. I think that companies would do themselves a real service by thinking about how they structure that role and make it a more significant part of the outreach to their long-term steady-state shareholders.

If you haven’t already done so, be sure to check the webcast transcript out.

Podcast: Individual Director Evaluations

In this podcast, Kris Veaco of the Veaco Group discusses individual director evaluations, including:

– Why aren’t individual director evaluations more common?
– What is the process for evaluating individual directors?
– What do you do with the evaluation results?
– What are some of the benefits of individual director evaluations?
– Any final thoughts?


– by Randi Val Morrison