February 11, 2019

Shareholder Engagement: Getting Director Participation Right

Effective shareholder engagement is becoming more essential every year. So, it’s helpful to find examples of companies that do it well & can provide insights into what investors regard as “best practices.”  This recent “Corporate Secretary” article spotlights Hewlett Packard Enterprise’s efforts – which earned the company the award for “best shareholder engagement” at the magazine’s 2018 Corporate Governance Awards.  Here’s an excerpt on the role directors play in HPE’s engagement efforts:

Directors have traditionally been averse to taking part in meetings with shareholders, but best practice now requires their involvement at some level. HPE’s engagement includes a three-month off-season board outreach program comprising one-on-one, on-site meetings between shareholders and directors.

During fiscal 2018, the company broadened these efforts to holders of more than 60 percent of HPE’s stock. Combined with the participation of investor advisory firms, the program engaged directly with holders or advisers of more than 55 percent of its common stock.

HPE is keen on providing direct shareholder access to the board so investors can hear directors’ thinking, and vice versa, without a management filter. The company’s engagement program includes the board chair, committee chairs and other directors that shareholders have a specific interest in meeting.

Engagement efforts extend to semi-annual customer meetings, in which directors often participate in panel discussions. Directors also frequently attend the company’s annual investor day presentation.

Conference Calls: Anatomy of a “Non-Answer”

One of the more interesting – and awkward – aspects of an earnings conference call occurs when an executive declines to answer an analyst’s question.  This recent study reviewed situations in which company officials expressly declined to answer a question, and reached some interesting conclusions about when corporate officials were more – and less – likely to be forthcoming. Here’s an excerpt from the abstract:

Using our measure, about 11% of questions elicit non-answers, a rate that is stable over time and similar across industries. Consistent with extant theory, we find firms are less willing to disclose when competition is more intense, but more willing to disclose prior to raising capital. An important feature of our measure is that it yields several observations for each firm-quarter, which allows us to examine disclosure choice within a call as a function of properties of the question.

We find product-related questions are associated with non-answers, and this association is stronger when competition is more intense, suggesting product-related information has higher proprietary cost. While firms are more forthcoming prior to raising capital, the within-call analyses for future-performance-related questions shows firms are less likely to answer future-performance-related questions shortly before equity or debt offerings when legal liability is higher.

These results probably don’t come as a big surprise – and may even provide some comfort to lawyers that their guidance about the hazards of hyping future results when raising capital have been taken to heart.

But the study’s results suggest that the Securities Act’s liability scheme is a double-edged sword when it comes to corporate communications. Companies thinking about a deal are more willing to share historical information with the market – but more reticent to comment about the future.

Tomorrow’s Webcast: “How to Use Cryptocurrency as Compensation”

Tune in tomorrow for the webcast — “How to Use Cryptocurrency as Compensation” — to hear Perkins Coie’s Wendy Moore and Morrison & Forester’s Ali Nardali and Fredo Silva discuss the groundswell in the use of cryptocurrency as compensation among private companies — and the legal framework that applies.

John Jenkins