Effective Board Engagement with Shareholders

Abstract:     
Shareholders around the world are seeking greater dialogue with boards of directors of investee companies on an expanding array of topics. For example, demands by investors in the US and other markets for greater shareholder rights - such as an advisory vote on remuneration - are in part efforts to engage the board on important governance issues. This article, drawing upon the author's experience in the UK and other markets as head of corporate governance at a large investment firm, offers practical suggestions to boards on improving engagement with their shareholders.

Suggestions made include: 1) boards should strive to build long-term, trust-based relationships with their most significant shareholders and board leaders should engage directly with them rather than delegating this function to the investor relations team; 2) regularity is important, as relationships and goodwill are built through repeated encounters; 3) boards need to be careful about the impressions they create as perceptions of arrogance or disdain for shareholders can haunt a company a long time; 4) shareholders do not expect boards to be infallible, and owning up to mistakes can help disarm even the angriest investors; and 5) divergent viewpoints among directors are not necessarily problematic and can even provide comfort to investors that the board is rigorous and serious.

Keywords: Corporate governance, board-shareholder dialogue, engagement

JEL Classifications: G34

Accepted Paper Series