Lead Director Network: “A Dialogue with Institutional Investors”

(From the details memo on this event, available at the link below)
On June 19, 2012, the Lead Director Network (LDN) convened in New York City for its 13th meeting, during which members examined the relationship between directors and major shareholders.
Members were joined by representatives of two different types of institutional investor: Richard Breeden, former chairman of the United States Securities and Exchange Commission (SEC), and CEO and chairman of Breeden Capital Management, an asset manager focused on active engagement in a small number of investments; and Shawn Johnson, senior managing director and investment committee chair at State Street Global Advisors, a large and diversified investor with substantial holdings across virtually all public companies. Gary Retelny, president of Institutional Shareholder Services (ISS) and executive committee member of its parent, MSCI, joined members and guests for a dinner discussion concerning proxy advisers.
This issue of ViewPoints synthesizes discussions of the LDN members and guests concerning board-shareholder engagement.

Executive summary
Directors, particularly lead directors, face increasing pressure to meet directly with their companies’ largest institutional shareholders. Many LDN members have engaged with their shareholders; those who have not are interested in exploring the benefits and risks of such meetings.

The upswing in board-shareholder engagement (Page 2)
According to both directors and investors, demand for direct board-shareholder engagement has increased. Pressure for corporate performance, greater attention to governance, new investor powers, international practices, and frustration with written disclosures are contributing factors. Members and guests expect that board-shareholder engagement will become even more common in years to come

Topics for board-shareholder discussion (Page 4)
When they meet, directors and investors tend to discuss issues such as board composition and leadership structure, executive compensation, and CEO performance. Most LDN members suggested that board-shareholder dialogue should not focus on a company’s strategy or financial or operational performance, but some shareholders will be focused on those topics rather than governance issues.

Benefits and risks of direct engagement (Page 6)
Direct engagement can help directors better understand the company, its investors, and related issues, and might result in practical advice or better proxy voting outcomes. Engagement may also satisfy investor desire to meet with the directors they elect. However, director-investor dialogue carries risks that must be managed carefully, such as the potential for mixed messages, excluding management from shareholder conversations, and violating Regulation Fair Disclosure (Reg FD).

Effective engagement practices (Page 9) Members and guests identified a number of practices that improve director-shareholder dialogue, such as having directors learn more about shareholders and their voting preferences before the meeting, carefully selecting investors and company representatives for the specific issues to be discussed, and setting, and following, the right agenda. More broadly, some members felt that regular, proactive engagement with shareholders is preferable to reactive outreach during proxy season. Members suggested that management should generally coordinate and participate in meetings with shareholders unless circumstances require otherwise. There is no one ideal format for investor meetings; one-on-one meetings, teleconferences, and informal group gatherings can all be effective.

Full memo – click on Download Original Asset at lower right:


The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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