Shrinking the board portal market

The crush of regulatory burdens coupled with increasing demand for much closer board supervision of daily company business activities has brought a significant jump in communication requirements at the board level. With that, there emerged a burgeoning electronic industry presenting new technology solutions to corporate secretaries and their boards.

Immediately following the signing of the Sarbanes-Oxley Act, technology vendors started building online communications tools designed to streamline the way board directors would access and analyze information. The number of vendors grew rapidly with several dozen vendors in the space at one stage. Times are changing though. This year has witnessed some significant consolidation in the market as corporations look for better service and a range of tools in a single suite. Some of the small players have left the sector while others are merging with larger firms.

Andrew Moore, VP of governance services at Computershare, which acquired DataCare during the summer, believes consolidation in the sector was inevitable. ‘Consolidation is taking place across the service provider space generally and this sector is no different,’ he explains. Technology is ‘hot’ again. Company valuations are at levels where founders are willing to sell and larger firms are looking to buy. ‘In the board portal space particularly,’ Moore explains, there was a flood of vendors that entered the space at roughly the same time. ‘I think most people inside and outside the industry saw this as unsustainable. Like any perceived gold rush, this is about survival of the fittest and strongest. A number of companies were very small and this was/is their only offering.’ Companies are demanding more and are no longer looking for a single point solution.

Bruce Aust, the man in charge of listed company services at Nasdaq and the person who engineered the recent acquisition of Director’s Desk, says, ‘As you look at all that is going on and the complexity of boards today, having [an online board tool] is something that everyone is going to be looking for in the future.’

He declined to say how much was paid for the acquisition, but said about 1,000 directors are users, many of whom are with Nasdaq-listed companies. Integration of the product into a larger suite of services for member companies is the real reason for making the move. Noting its relatively recent acquisitions of Shareholder.com and PrimeNewswire, the press release distribution service, Aust ticked off a list of nearly a dozen services and partnerships Nasdaq is involved in.

Nasdaq is competing aggressively to gain listed companies while retaining those they have, especially versus the NYSE Euronext, which for many years regularly poached Nasdaq firms claiming greater stature in the market place. That pattern changed some years ago, and the battleground has shifted to capturing new business. Both entities are trying to have the most complete support systems they can muster, and Nasdaq believes the addition of new technology services such as Director’s Desk will go some way to achieving this aim.

Same portals, new tricks

The idea of portals or their related representations, dashboards, which allow control and display of data and communications links, has been around since the late 1980s. Most of the early implementations, however, were focused either on individual company requirements or were set in vertical processes such as enhanced customer relations or financial management.

In their most generic form, these portals afford a director the opportunity to go electronic, avoiding the hassle of handling sometimes mountainous amounts of paper, or at least, providing an alternative which can supplement paper in a way that fits for the director or his/her company. The management of the systems usually comes down to corporate secretaries or corporate counsels who are tasked with organizing board agendas and the supporting documentation. This can be substantial, as practitioners know, particularly in the mergers and acquisitions area where board members want both succinct descriptions of agenda items as well as the opportunity to dig deeper to execute due diligence or simply to get a question answered.

This need has always been there, but the proliferation of regulation, shareholder demand for greater oversight of day-to-day corporate activity and the demands of a faster paced world with high connectivity have entirely changed the playing field. Likewise, the well-voiced need for faster, more reliable and highly secure means of communications has also jumped dramatically.

According to Peter Gleason at the National Association of Corporate Directors (NACD), ‘the topic of board portals now comes up at nearly every meeting I have.’ Implementation and use, however, are not necessarily quick to occur. Gleason, who heads up the research sector for NACD, attests to this trend: ‘I’ve heard positives and negatives on all fronts; on all vendors that are in this field and on the mechanism itself. But, while I have heard stories of people getting frustrated, I think that as we move forward with the technology, the systems will get more user friendly.’

Is it my generation?

This rough passage into a new era is often a matter of generational disparities as much as technological user friendliness. In their 2004 book Got Game?, authors John Beck and Mitchell Wade claim there is a generational gap that appears at about the age (then) of 35. Everyone over that age has little or no growing-up experience with electronic games, communications or devices. But everyone under that age has a cultural acclimation that goes right to the root of their being. Everything about games – from instant gratification to always being in control – is ingrained in their psyche. They therefore demand tools like those that are now being presented to directors and corporations by the board portal industry. This had initially set up a division between old and new board members.

But one observer says the notion of ‘old’ board members who don’t get it, has now become overblown. Johnnie Jackson Jr, former corporate secretary at Olin Corporation and a consultant on law and governance, says, ‘older members of the board are continuing learners. It is not like it was 15 years ago where they would say, Oh, the technology, that’s for the younger folks. Barriers to using this are falling rapidly and the price points are such that people should be looking at it.’

Joe Ruck, president and CEO of BoardVantage, substantiates this: ‘We make the distinction between the traditional directors and the progressive directors.’ The former would have a long history of using paper documents, while the latter are more at home with electronic communications. There is no question this separation exists, but after five years of selling portals to boards, starting at a time when there was not a ready market, Ruck says the distinction is falling away.

Power surge

At Computershare, a global enterprise software and support firm, the rise of the board portal has come in alongside its other entity management tools, serving more than 250 North American clients.

‘Right now we have over 50 users of BoardWorks,’ says Moore. He joins other vendors in saying that what is currently available is a robust product, but more developments can be anticipated: ‘The product is complete, but demands are changing. In development are such things as enhanced content for the site. We can put quite a bit through the same pipe, like compliance and governance information.’

At Thomson Financial, their offering, called BoardLink, has a head start in this area providing First Call research, companies financial data, 13-F shareowner filings, peer group filings and web conference call transcripts, among many other features.

As an evolving product, smarter and better board information systems are likely to appear. ‘What I see coming is a search mechanism so a director can run a scan on, say, options grants or litigation cases, or the date of the last 10Q,’ says consultant and former board member Jackson. With proper use, giving the board slide shows and other briefings ahead of time via an electronic connection can transform board meetings. ‘It has the potential for making the quality of the board meetings what I think they should be, which is a group of very smart, informed people sitting around talking about what is in the interest of the shareholders,’ rather than spending a lot of time being shown things. ‘I can see that coming,’ he adds.

Tried but not tested

Whether or not Nasdaq’s acquisition of Director’s Desk and Computershare’s purchase of DataCare herald more consolidation in the field is an open question. Ruck sees the moves as validating the space but says, from his perspective, combining with another entity has little attraction. The combination of size, reach and cross-selling  power do not win the argument, he says, noting the progress with his company which has grown consistently in recent times. ‘Innovation basically wins over presence if that presence isn’t backed up by expertise,’ Ruck adds.

Moore, however, disagrees and takes a broader view. ‘I see further consolidation; a lot of small companies are in this space, a lot have been bought and at least one has folded.

The upside of this for clients is that they will likely end up with a smaller group of stronger vendors and better products. The feedback I have from the market is that this [consolidation] is very much welcomed. The same way many looked to consolidate their outside counsel network a few years back, as technology takes a growing role in their lives, a smaller roster of reliable, full-service providers is perceived to be advantageous too.’

There is a downside in that consolidation rarely comes without some form of disruption, Moore explains. Products will be merged or faded out. This means change and change is not always openly embraced. The reality is technology products continually evolve and change so this process should not be too different from a regular upgrade for most users.

Mergers alone won’t reap benefits. The key is the company behind the acquisition, and looking for  reliable vendors with good reputations and at where board portals fit with existing offerings. The broader trend among software service providers is integration and inter-operation of services and solutions.