Continuing on with our “shareholder engagement” series of blogs, you need an organized set of engagement procedures with priorities and the ability to call on internal cross-department coordination – and director participation – when needed, depending on what is on the engagement agenda. Some companies have a written shareholder engagement policy to memorialize their processes and procedures and help set the company’s ground rules.
You should tailor your engagement approach depending on which investor you’re dealing with and the issues to be discussed. A mature and seasoned engagement program is key to successful engagement. Like most things in life, it’s quality over quantity.
It also depends on where you are as a company. If you’re just starting your first off-season engagement program, during your initial engagement, you should ask the investor about their engagement preferences (e.g., what time of year, how frequent, what topics and who they like to attend calls).
Some companies start with a list of their top 50 – or maybe it’s only 25 – shareholders. Newly public companies may start with just a handful of institutional investors because founders and venture capitalists still have significant holdings and their investor base hasn’t matured yet. The number will vary at each company – and perhaps over time – depending on the issues that the company faces, as well as the current level of resources at the corporate secretary’s department. If there are important issues on the year’s meeting ballot, the company might hire a proxy solicitor to help bring in the vote.
They look at that group of top shareholders and try to reach out to all of them over the course of the year. Each company will have a smaller subset of important shareholders and prioritize those engagements.
Which investors are in that smaller subset might change year to year, but it should remain fairly static. In addition to a company’s largest shareholders, that subset might include shareholders with a smaller stake who are vocal on issues that are crucial to the company. These issues might be ones that management finds near and dear to the heart. Or they might be issues where other investors are likely to follow the lead of the vocal shareholders. Or the issues at hand might draw media attention. Any serious reputational risk is worth engaging over.
You want to make sure that the shareholders you deem most important feel heard and that they have an open channel of communication. Always make sure – even if they don’t respond – to give them the opportunity to engage.
In addition to this subset of top shareholders, a second bucket should be the shareholders that have reached out to you – or to your management team – on governance and ESG issues. Engagement isn’t only phone calls, online video meetings and in-person meetings. Most companies receive many investor letters throughout the year (telling us why they voted a certain way, asking questions, etc.) that they track and respond to – and depending on the nature of the letter, sometimes the response would come from IR, sometimes from the corporate secretary, sometimes from the board chair or a board committee chair. Whomever is the most appropriate to respond.
Try to always respond and address questions or concerns from that bucket of shareholders. Particularly if you had a close call on a similar vote at the annual meeting last year. Reach out to those shareholders who didn’t vote your way on that agenda item and find out their sticking points.
And then the third bucket is everybody else. All of the other stakeholders in addition to other shareholders. This third bucket is important too. Don’t let anyone fall through the cracks if you can help it. But you should be organized and prioritize your engagements, particularly if you have limited resources.
Authored by
Broc Romanek