Boardroom activism: talk with shareholders? Board-shareholder communications could play an important role in improving company governance and performance.

• Author: Keiper, William

Over the past few years companies across the globe have experienced an unprecedented upheaval and meltdown in financial markets, currency gyrations, political unrest and joblessness across all strata of the workforce. Boards today are working in an international environment where many variables once seemingly distant from the board governance process are now a part of the dialogue. Investors are faced with these same complex challenges, but with far more limited visibility into the thinking and management of even the so-called controllable (or at least 'influence-able') elements of the business.

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Shareholder inputs (if heard at all by the board) are typically filtered in some fashion through the C-level officers of the company or investor relations. There are good and well-established reasons for this, including deep knowledge of the company at a level expected by professional investors and staying 'on message' as it relates to company positioning.

However, I believe there are at least three things wrong with this approach as the exclusive way for independent board members to receive shareholder input. First, it empowers the messaging intermediaries (who are clearly not disinterested). Second, it presents a 'spin' opportunity which could result in dilution or distortion of the message. Third, it reinforces the persistent isolation of independent board members from key shareholders. As opposed to direct board member-shareholder conversation, the actual practice is at best irrational and at worst dysfunctional.

Direct Access to the Board

Although communication between these intertwined business constituents rarely occurs, it could play an important role in improving company governance and potentially company performance. I recently spoke with a senior analyst with a well-established investment management firm who said, "In my 10 years as an analyst, I have never engaged with a non-executive director despite at times owning positions large enough to exercise significant influence ..." He also said, "The burden (for such communication) should fall not only on the non-executive board members to engage with investors, but also on investors in an attempt to speak more actively with the board."

For independent board members to act as effective and informed representatives of the shareholders, the viewpoints and opinions of institutional and individual shareholders should not only be delivered by management, but be accessed...