Regular invitation

Nobody has to convince Dean Lindroth of the importance of board-investor communication. Just two weeks after he started his job as head of IR for Motorola in January 2007, legendary shareholder activist Carl Icahn announced he had acquired 6.4 percent of the company. Then he began making demands.

Icahn’s assault led to a proxy fight. Through the battles, Lindroth co-chaired an internal working group that consulted on how to respond to Icahn’s campaign in addition to providing verbal and electronic communications to the board as often as four times a week. One board member, who was appointed COO in the middle of the battle, even participated in roadshows, answering questions from shareholders.

The results of all the teamwork were apparent when the votes were tallied at the company’s annual meeting. Icahn failed to secure a board seat and had to move on to a new strategy. ‘We debated the issues on the committee and decided how to frame them as we brought them to the board,’ Lindroth says. ‘Effective board communications are vital. I think it was a very important part of the overall strategy of the proxy contest.’

Months later, Motorola did agree to nominate two directors backed by Icahn in exchange for a pledge to drop all lawsuits and discontinue solicitation of proxy votes. Still, Lindroth’s experience is a dramatic example of an industry-wide trend: regular and direct interactions between IR professionals and their boards are becoming increasingly common – and not just during times of crisis.

A dual benefit

Some industry sages are advising their colleagues to initiate regular board communications, even during benign times, which could aid both sides. ‘There are two chief benefits,’ says Jay Steffenhagen, chairman of HemaCare, a California health services company. ‘The first is a real value for governance, because IR professionals can help the board understand investor perceptions and expectations about the company. The second benefit accrues to the IR officers. It helps them become known to the board and it opens up more opportunity for responsibility and advancement.’

Regular interaction between IR professionals and their boards are far from normal. That’s one reason undertaking a regular communications campaign shouldn’t be taken lightly, says Jay Gould, vice president of IR for Huntington Bancshares.

Gould emphasizes the importance of securing management’s blessing before opening up communication with the board, and of being prepared to ‘keep confidences.’ Some board members may even ask their IR professional not to share their queries with management. Thus it’s important to discuss the protocols to use in those situations with superiors prior to initiating contact, he says. 

Start out small, Gould suggests, with non-threatening information such as monthly relative stock price performance and quarterly changes in the shareholder base. He also advises using a concise and consistent method of presentation that varies little from month to month, so it is easy to follow. ‘Build that list over time as you and management get comfortable with what you are sharing,’ he says. ‘You need to position yourself as a candid, reliable source of value-added information. That is really your reason for being. You are an information source.’

In his current role, Gould provides his board with trends in analyst estimates – whether they are going up or down – as well as changes in ownership, short interest and the key topics on investors’ minds. Most boards will also appreciate any insights or color behind analyst ratings, estimates and targets, both Steffenhagen and Gould agree. Providing such invaluable detail is one way to impress the board.

‘The IR officer has a personal relationship with the analyst and can provide in many cases additional insight beyond just the written word that arrives in the report,’ Steffenhagen says. ‘One of the ways that I found success is not only using this forum to explain how I market the company to investors and to report on who the investors are and what they think about the company but actually inviting an analyst to come to the meeting so the board could hear firsthand what investors are concerned with.’

The frequency of communication with the board should vary depending on their needs and the situation of the company. Gould generally sends a monthly email, and urges them to reply if they’d like to know more. He may also present once a year. Steffenhagen recommends IR professionals give a report at every board meeting, occasionally for the corporate governance committee, but usually for the finance committee.

The frequency of reports – and who gets them – often changes in times of crisis. During Motorola’s proxy battle, board communication was most frequent in the days prior to a major action, such as the issuance of a company press release to counter Icahn’s moves. It generally ranged from one to four times a week, Lindroth says.

The power of positive talk

Gould stepped up his communication with the board and management in recent months as the credit crisis hit his company hard. In June, negative chatter about the company sent the stock down from $9 to $5 in a two-week period, prompting Gould to suggest they issue a press release to calm investors. The release acknowledged the decline but reassured investors that the company outlook remained consistent and it was pleased with performance. The stock immediately shot up more than $1.

The company was able to move fast on that decision because everyone was up to speed. That kept Gould very busy. ‘You have to keep your feet in the pool all the time,’ he says. ‘I’m spending an exorbitant amount of time reading press headlines and Bloomberg headlines. I’m reading blogs now like I never read them before.’

Whatever the frequency of communications, brevity and focus remain paramount, with minimum jargon and one or two key points that the board members can walk away with. ‘You as the IRO want to know that they got the point. You don’t want the point to be obfuscated, buried in a bunch of details,’ Gould says. ‘Board members are intelligent people: they follow the company; they’ve got their own antennae out; they have their own information; and they don’t need to hear everything. They’re looking to you as the IRO to tell them what you are hearing from shareholders.’

If done right, with management cooperation and with care to avoid political minefields, IR board communication ‘is one of the best vehicles for you to leverage your position within in your company to the next level,’ says Steffenhagen.

‘Try and identify one-time presentations that you can make to either the board or the management group. Particularly useful are strategic retreats either of management or the board,’ he says. ‘Whatever you do, frame it for the board’s perspective, and work with your CFO and your CEO if you don’t already make presentations to the board to find a way to get started.’

This article also appears in the November issue of our sister publication, IR magazine.