Reaching out to your 'customers.' (contacts between corporate boards and institutional investors)

• Author: Amen, Robert

A number of CEOs are finding that it pays to initiate contacts between their boards and institutions with significant holdings.

The phone call came from an "independent" director, notifying the chairman that the executive committee of the Council of Institutional Investors wanted to discuss the corporation's perceived non-performance. The chairman was chagrined when told that all of the independent directors had agreed to such a meeting. The session reportedly gave the institutions a chance to air their concerns, which by itself helped the relationships.

In another case, the chairman and CEO of a major consumer products company read in the newspaper that his was one of 12 corporations placed on a special "hit list" by CalPERS, the California Public Employees Retirement System pension fund, and might be the subject of a stockholder proposal on "excessive" executive compensation in its proxy statement for the annual meeting. This CEO flew to Sacramento, Calif., to present data on the company's stock performance and executive compensation process -- explained by an outside consultant to the board. As a result, CalPERS agreed to issue a press release the same day, praising the company's performance and retracting its concerns.

There is enough precedent and practice for both CEOs to have been able to avoid such a problem, and a number of CEOs are finding that it pays to initiate contacts between their boards and institutions with significant holdings in their stock.

It has become clear that "accountability" and "process" are two key concepts being promulgated by institutional investors. Here are some recommendations we have made to clients:

* Commit at least 3% of your time each year (6.5 days) to investor relations activities, as part of your routine responsibilities.

* Schedule a substantial portion of one board meeting each year for a review of IR.

* Set up an investor relations committee of the board to monitor the program.

* Set up an internal "process" and program for investor relations, based on consistent dissemination of information to a broad audience.

* Approach investors as "customers" as well as one of the company's major stakeholder audiences. See that the directors do the same.

* Focus initially on current shareholders, especially the top 20 or so; they own the stock for a reason and want you to succeed!

* Divide the list of top shareholders among senior management -- and directors, if appropriate -- and require that they contact...