Let's focus on the board hearing from the owners: at critical points, one-on-one unfiltered communication between owners and board members is absolutely essential.

• Author: Cibelli, Mario
• Position: BOARD PRACTICES

WHO SPEAKS for the board? How about: Whom does the board speak to?

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It is the reverse dialogue that is most interesting to me and other investment managers who are long-term oriented and focused on company fundamentals. Our investment fund has been in existence since 1997 and has, from time to time, sought to communicate with board members of our portfolio companies. When owners communicate with board members, an unfiltered flow of ideas and expectations is initiated. I believe this provides a benefit to all the relevant parties in the corporate structure.

Shareholder communication with board members is often discouraged for a variety of reasons that I will not address here. I believe that this line of communication is necessary and an essential part of maintaining a culture of strong corporate governance.

The corporate structure can be broken down very simply as follows: owners, management, and board members. Board members are responsible for setting high-level policy and goals for management to execute so that the owners may ultimately benefit. Owner expectations and feedback are appropriately shared with management. Management in turn is expected to share owners' thoughts and concerns with board members. While this process generally works for all concerned parties, it is the unfiltered flow of information that is necessary to insure board members are receiving an accurate set of expectations from owners.

Before board members start squirming in their seats at this notion, let me make clear that the traditional lines of communication cover most of the concerns any owner might have. Direct communication between a grandmother looking for her extra shares after a split and board members is not a good idea. Likewise, I believe short-term-oriented owners should have limited opportunities to influence board members. Of course, any shareholder can always communicate with board members by simply writing a letter to the board. But at critical points most often associated with corporate events, that one-on-one unfiltered...