Global panel of corporate secretaries discuss shareholder engagement approaches
Cross border issues such as identifying who your overseas investors are and communicating with them where they are is one of most critical matters that company secretaries will face from now on. That is one of the points made by Paul Conn, president of global capital markets at Computershare, on an April 17 webinar, Shareholder Engagement: Global Perspectives and Trends, hosted by the Corporate Secretaries International Association (CSIA) and co-sponsored by Computershare and Deloitte. The webinar highlighted and supplemented some of the findings in CSIA’s a newly released position paper, titled Shareholder engagement: practical steps for corporate secretaries, which was sponsored by Computershare and Georgeson.
The first part of the webinar focused on various modes of shareholder engagement around the world. Moderated by CSIA president Kathy Combs, this session featured summaries of approaches to engagement with investors by the heads of corporate secretary organizations in South Africa, Hong Kong, Australia and the US.
One interesting comment during this session came from Peter Turnbull, former president of CSIA and the Governance Institute of Australia and currently a non-executive director, who said, ‘Smart boards are adding one or two people who have experience with activism, which provides a bit of a check against activism.’
The second session, moderated by Conn, dealt with encouraging and engaging retail voters and featured comments from both issuers and governance consultants. Among the topics covered were challenges to improving investor participation in proxy voting as a result of Notice & Access procedures and the pros and cons of moving toward virtual annual shareholder meetings.
‘One challenge in the US is that shareholders can remain anonymous. [Because of ] beneficial owners, shareholders don’t have to tell issuers who they are. They can hide behind the bank or [whoever the broker is],’ said Chris Hayden, senior managing director at Georgeson. ‘What does engagement mean when you don’t know who some of your shareholders are?’
Companies’ interest in enabling virtual access to their annual meetings has been to extend the reach of these meetings to shareholders, like some retirees, who may not have the means or ability to travel to attend the meeting in person, said Darla Stuckey, president and CEO of the Society of Corporate Secretaries and Governance Professionals. The decision to not hold a physical meeting and instead hold it exclusively in a virtual format may be most appropriate when there are no shareholder proposals in the proxy, ‘but even now, shareholders can share a proposal on a screen and interact with people in the room,’ she added. Virtual technology isn’t cheap, however, so it may sometimes be less costly to hold a physical meeting, she said.
Another hindrance to holding annual meetings only in a virtual format is the need to enable the use of electronic proxies, which currently makes them impractical in Hong Kong, where only a few companies are using electronic proxies, said April Chan, former president of CSIA and of the Hong Kong Institute of Chartered Secretaries, and currently company secretary of CLP Holdings.
The CSIA paper features recommendations for both investors and issuers. According to the paper, institutional investors
- Should adopt and disclose their corporate governance and proxy voting policies, the extent to which they rely on proxy advisory services and how they fulfill their stewardship responsibilities, including management of conflicts of interest;
- Should have sufficient staff dedicated to corporate governance issue and proxy voting to analyze and make voting decisions on the proposals of the companies in which they invest, and to communicate efficiently with corporate secretaries;
- With concerns about a company’s corporate governance practices should first reach out to the corporate secretary to discuss their concerns; shareholder proposals, class action lawsuits, proxy contests and media campaigns are engagement tactics that should be used only after private dialogue and other means of communication have failed; and
- Should reach out to the corporate secretary before casting a negative vote on a significant corporate governance issue or, if the former is not feasible, send a letter soon after the fact explaining the reasons for the vote.
Recommendations for issuers state that corporate secretaries
- Should keep abreast of their significant investors’ corporate governance and proxy voting policies, understand if and how their companies governance practices may not align with those policies, and explain any substantive difference between the two to significant investors;
- Should keep their boards and senior management informed about corporate governance trends and any concerns investors may have about the company’s governance practices;
- Should engage , along with designated members of senior management, as appropriate, in regular communication with significant investors and have established channels through which investors can communicate with management and the board. Corporate secretaries should proactively inform investors of significant changes in the company’s corporate governance practices;
- Should also communicate regularly with retail investors and should, if practicable, utilize available technology to enable shareholders to communicate with senior management and the board, and to participate virtually in the annual shareholders meeting;
- Should ensure that communications with investors be regular and routine. Companies should not wait until a crisis or a serious issue develops before engaging in a dialogue with investors. That said, companies should also respect investors’ desire to use their time judiciously, which may mean declining a meeting request if they have no current concerns. Companies should be open to including one or more members of their board in their engagements, depending on the circumstances (for example, executive compensation);
- Should designate and disclose the identity of persons responsible for communicating with investors. With respect to governance issues, the corporate secretary usually performs this role for companies. Service providers can assist them in performing these functions; depending on the process, processes could be performed in-house or outsourced; and
- Should draft a shareholder engagement policy that companies are encouraged to establish as appropriate and publish on their website. The corporate secretary should then submit this policy, which is based on the relevant corporate governance practices, to the board or relevant board committee for approval and implementing the policy.