A board's template to evaluate the IRO: don't be blindsided by issues raised in the investment community. Do a check-up on the capability of your investor relations function.

• Author: Thompson, Louis M., Jr.
• Position: INVESTOR RELATIONS

TAKE A LOOK at what could well result in the "perfect storm" for director elections in 2008: the convergence of potential SEC proxy rule changes with the elimination of the 10-day broker voting rule; majority voting; proxy access for nominating directors; increasing activism among pension, mutual, and hedge funds along with "empty voting"; and increased empowerment of individual investors in proxy voting.

Today, more than any other time in recent memory, corporate directors must have confidence that they are being given the best, most accurate information to perform their duties and avoid losing their board seat in the 2008 election.

Many directors have not received the full benefit from feedback provided by the corporate investor relations officer (IRO), who is on the front line communicating daily with the company's investors and analysts. This gives the IRO a unique perspective that should be shared with directors so they are not blindsided by surprises that could come from the investment community.

An activist hedge fund manager's request for a meeting with directors to challenge the company's strategy can be very unsettling--particularly if that fund has borrowed a significant number of shares to be used in a process called "empty voting" that could potentially influence the outcome of a director's election or shareholder proxy issue. (Empty voting is emerging as a tool whereby activist funds borrow a company's shares from a pension fund or brokerage firm for a fee, ahead of a company's record date, in order to gain the voting rights of those shares.)

So, what should board members expect from the IRO? Candor, credibility, and transparency are key factors, the same as the Street expects from the IRO. A majority of S & P 500 companies are receiving written reports from the investor relations officer, but far fewer invite the IRO into the boardroom for a face-to-face briefing where strategic issues can be discussed. In such a setting, board members can ask questions to satisfy themselves that they are getting the straight story and an understanding of what key investors and analysts are thinking and saying about the company.

Here is a template that directors can use to evaluate whether they are getting the kind of information and assistance they need from investor relations.

What is crucial for today's board of directors is having an IRO who is empowered to communicate with analysts/investors at a strategic level. If not, that person will...