A new era in corporate governance

A new era in corporate governance

As highlighted in our previous discussions on shareholder engagement, there has been a paradigm shift as to how the board and the executive management engage with shareholders. Prior to this change, shareholder engagement used to consist of shareholders attending analyst conference meetings, quarterly earnings meetings and annual general meeting of shareholders.

There has however been a recent trend of shareholders demanding personal interaction with directors and with members of the management team. Shareholders have largely been dissatisfied with this type of communication with the board and management. Some shareholders felt that meeting with the board of directors and managers once a year at the annual general meeting was simply not enough, and felt that some of the discussions during that time were very impersonal, outdated and not meaningful at all.

Shareholders are therefore demanding to be heard and to be on the know regarding the performance of the company and how the company is being run. This trend reflects a new dispensation in corporate governance.
Some boards have been proactive and have built shareholder engagement as part of their responsibilities and have thus strategically increased shareholder engagement.

Such boards have seen the benefits of engaging shareholders. By engaging shareholders the boards have been able to get shareholder views, concerns, ideas and opinions and also the board of directors and executive management team have had opportunities to communicate their perspectives on corporate strategies and other decisions to the shareholders and thereby get their input before things get out hand.

Engaging shareholders has helped in establishing a mutually respectful relationship, and has increased transparency and developed a rapport between the two parties.
Although companies have found it very beneficial to engage with shareholders, these same organisations are grappling with the way the engagement has to be carried out. They still have a lot of questions about how to begin shareholder engagement, how frequently this contact should be made, who should be making contact and what the discussions should entail.
To address this issue companies should develop a shareholder engagement policy that should help everyone to be on the same page.

A shareholder engagement policy will help to outline formal guidelines for companies to interact and communicate with shareholders. The guidelines contained in the policy will provide guidance for boards and managers on how best to deal with shareholders.
Shareholder engagement policies outline the methods of interaction and the types of topics in which both parties may engage. They help facilitate an effective communication between shareholders and the board and executive management team.

If a company adheres to the shareholder engagement policy it will offer insight into both parties’ perspectives on how the organisation should be run and will promote greater alignment. This will help to alleviate shareholder dissatisfaction. Frequent and direct shareholder engagement is more effective when implemented as a proactive preventive measure within the guidelines of the policy.

Having an engagement policy helps in avoiding unexpected consequences of board decisions made without shareholder knowledge, the shareholder will appreciate how the company’s short-term performance may affect its longer-term goals, this will be an opportunity for company management and directors to receive outside advice and fresh perspective, and there will be goodwill and trust between the company and its shareholders.

When designing a shareholder engagement policy, the company leadership should ensure that the policy will facilitate two-way communication among the management, the board of directors and the company’s shareholders. It’s important for the company leadership to consider the following in designing the policy:

Companies should identify which types of investors they are seeking to engage. The type and level of engagement may depend on whether the shareholder is a retail or institutional holder and whether the individual is an analyst, portfolio manager, governance professional or executive officer. The company leadership should also identify the topics about which shareholders are concerned with.

Some of the topics that should be part of the agenda to be addressed as a requirement in the shareholder engagement policy could include the following: board composition and leadership, board involvement in strategy development and oversight, executive compensation philosophy and structure, the process and philosophy surrounding executive and board member succession planning, financial oversight and risk management.

A shareholder engagement policy should delineate the engagement role and responsibilities of directors and management. Normally, directors should address corporate governance matters, while financial performance and corporate strategy are more appropriate for management.
Certain personnel should be selected to represent the company during engagement. Having identified the individuals in the policy who will represent the company during engagements can help ensure regulatory compliance, mitigate risks of misunderstanding or sharing inconsistent information and improve communication after the engagement.

Investor meetings held outside of the annual general meeting might not relay the same message every time various members of management sit down with a different investor or group of investors. It is therefore helpful for the shareholder engagement policy to outline procedures that allow for consistent responses while not unnecessarily restricting dialogue.

The policy should include the way the company will engage with shareholders. There are several methods of engaging with shareholders which might incorporate mass shareholder outreach, targeted shareholder outreach or individual conversations. Some of the ways of shareholder engagement are: virtual meetings, shareholder surveys, electronic shareholder forums, governance roadshows, conference calls, webcasts, podcasts, corporate websites or blogs and social media.

Use of virtual technology has been found to be a potentially valuable part of an effective shareholder engagement policy. The virtual option should facilitate the opportunity for remote attendees to participate in the meeting to the same degree as in-person attendees. Such meetings may promote attendance, boost participation and save company and shareholder money.
It has become apparent that shareholder engagement activities will continue to increase among organisations and boards.

A proactive and well-planned shareholder engagement strategy can be an effective tool to help foster relationships. Having a properly designed shareholder engagement policy will help company leadership in engaging with shareholders properly within laid guidelines.

Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062.

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