Wednesday, February 10, 2010

Talking to Investors Before They Vote Their Proxy

I recently had the pleasure of being interviewed for a podcast by Broc Romanek who writes the blog The Corporate Counsel ( Broc’s blog is one of the best around for digging into the technical requirements surrounding dealing with the SEC. Sometimes the stuff is way too technical for me (and I used to practice securities law), but other times the information is really useful. Just to take and example, with Washington buried under two successive snowstorms that have shut down federal government offices, you might wonder how that affects your SEC filings that may be due or that you might wish to file. Broc knows and you can find out on his blog.

Broc’s interview was on one of my favorite topics, trying to place a value on investor relations. For those of you who want a quick overview (the whole podcast is only 8 ½ minutes long) on what the research says about the value of IR, you can find it here:

If you want fuller treatments about the research, see my blog post of July 7, 2008. Broc was even kind enough to put in a plug for my upcoming seminar, “Fundamentals of Investor Relations”, February 24th at The Houstonian Hotel, Club and Spa in Houston.

For more information go to

During the interview, something that Broc said struck me as interesting and I thought it was worthy of commentary. Specifically, Broc mentioned that with all of the changes to proxy rules, disclosures and the way issues are voted, there needs to be more communication between IR and the legal team. I think that Broc is right. Too often, specific, mandated disclosures such as proxy compensation discussions get compartmentalized. Lawyers read the rules, write disclosures to conform to the rules and present them in draft form to IR and management. Anybody that’s not a lawyer hates to read this stuff – it’s technical, dry and reads like a lawyer wrote it. So there are usually minimal revisions and the dense, dusty verbiage gets plunked down into the proxy statement. It’s the great irony of this type of disclosure – the more you have of it, the less likely it is to get read.

Now if you think about this process, there is a crucial link missing. Nobody talks to the investors who actually vote the shares. This is somewhat akin to politicians running for office without doing any polling. So when corporate proxy votes come in and there are large withholds on certain issues, companies have only themselves to blame. Actually, that’s not quite true, because portfolio managers in general hate spending time on corporate governance issues. It distracts from what they see as their main mission – making money on stocks.

Here’s a couple of suggestions to bridge this gap: First, well in advance of proxy season, investor relations officers, together with their securities law counsel, should schedule a number of calls to key investors to discuss current disclosure issues in areas such as compensation and governance. The calls should be designed as a dialogue to discover how investors view the topics and not as advocacy. Remember, you can’t solicit votes without a proxy statement. What investors want to hear can then be incorporated into your disclosures. Similarly, when you’re out on non-deal road shows, ask to spend five minutes at the end of a visit discussing the firm’s views on disclosure issues, whether they be compensation, governance or social responsibility. In the larger firms this will mean that they will have to bring in someone at the end of the meeting, as there is usually a separate person that deals with proxy voting, but it is well worth the effort as it gives upper management an opportunity to hear investors’ concerns and thinking.

This is not a cure-all, as sometimes investors want to hear things that management doesn’t want to disclose or they want governance structures that management is unwilling to implement, but at least you’ll know prior to the vote being cast.

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