A Failure to Communicate
Today’s economy has caused heightened awareness of the failure to communicate between boards and shareholders. The financial crisis and unstable stock market have created a stronger need for frustrated and angry investors to get information on corporate governance issues, including executive compensation structures, CEO succession planning, and board nominations, to name a few.
Barry Genkin, partner at Blank Rome, who advises CEOs, boards, and audit and compensation committees in proxy battles, believes a lot of the unrest began when regulation prevented the amount of information companies made public, known as Regulation Fair Disclosure or Reg FD. “Companies used to meet with analysts and those analysts would write up reports,” says Genkin. “After new regulations intended to prevent ‘selective disclosure,’ companies were limited to only information they could place in an 8-K or press release.” Instead of working out other ways to inform investors, companies simply sent out less information, he says.
“Information didn’t dry up,” adds Genkin. “But it wasn’t as robust.” Overall, Genkin agrees that companies have not dealt well with the disclosure requirements to investors. “A constant communication mechanism needs to happen,” says Genkin. “Enlightened companies who are aware of their company’s communication shortcomings need to be very aggressive.”
To be sure, shareholders are a varied lot, often equipped with competing agendas and different views on governance. Genkin warns of the shareholder wolves in sheep’s clothes—the investor who is only interested in short-term performance. From his experience, there are shareholders out there looking to pursue their own aims under the guise of everyone’s interest. He notes that boards can hone in on who is legitimately concerned with the company’s long-term well-being and those looking for fast returns. Careful listening is required. “I’ve had activist shareholders approach boards saying ‘we’re your friends,’ while offering views that could be useful to the board,” says Genkin. “Some of the ideas of activist shareholders have become beneficial to the company and it becomes a win-win.”
To read this article in its entirety, please click here.
"A Failure to Communicate," by Gretchen Michals appeared in The Directorship Magazine (April 2009). To learn more about The Directorship, please visit www.directorship.com.