Director-Led Shareholder Engagement Is Normal

Director led shareholder engagement is now a norm for public companies, with boards taking the opportunity to develop rapport with investors in advance of or concurrent with transformational changes. This meaningful engagement is a tool which can authentically signal board oversight of businesses at every stage.

We summarize our review of this trend and relevant secondary sources below, with additional depth available in our Q&A on the same topic.

Director-Shareholder Engagement Trends

Director led engagement is common generally, particularly among companies with over $1b in revenue, and the lead independent director (LID) often leads those engagements. Compensation Committee (CC) chair involvement is also common and recommended when discussing compensation issues, which is the most common topic for shareholder engagement with a particular focus on incentive compensation plan design. CEO involvement in outreach falls just behind the LID and above the CC chair in frequency of engagement.
If a say-on-pay vote is poor (<70% “yes”), ISS will also review shareholder engagement practices, including the degree of board level engagement with shareholders.

Effectiveness

Of surveyed directors who participated in this type of engagement, nearly 90% say it was productive.

Engagement Best Practices

We recommend reaching out to the institutional shareholders who represent 50%+ of a companys shares and vote independent of ISS.
Directors will need to be fully prepared for these calls so as to ensure a unified message and tone. These conversations should be structured as dialogues with investors that do not disclose material public information. Consider preparing an internal summary of key shareholder voting guidelines and considerations, and crafting talking points accordingly.
It is best practice for these governance calls (in contrast to typical investor relations calls) to be set up by someone other than the CEO (e.g., a corporate secretary). An agenda should be circulated with each invite to focus the shareholders on the important issues and increase the invite acceptance rate.
A debrief call can be scheduled immediately after each shareholder discussion to download the outcome/shareholder feedback, and a final synthesis of those notes should be prepared after all outreaches are completed for presentation to the CC/Board, as applicable.