As US investors take a stance – or begin to vote in favor of shareholder resolutions – on issues ranging from board diversity and sustainability to human rights in the supply chain and political lobbying, they are driving a convergence between investor relations (IR) teams and corporate secretaries.
A joined-up approach can lead to significantly better results from off-season engagement, proxy statements and proxy adviser engagement, professionals say, and there are examples of this in action, but it needs to be done correctly. ‘Engagement for engagement’s sake is not good,’ Rani Doyle, executive director with EY’s Center for Board Matters, tells Corporate Secretary. ‘Companies need to understand who their key investors are and what their perspectives are, so they can decide how to address these concerns and who should be talking to the investor.’
Stephen Brown, senior adviser to the KPMG Board Leadership Center, acknowledges that progress has been made in getting governance and IR teams to work more closely together on shareholder engagement to meet investor demands – but he says more needs to be done. ‘At many companies, this [shareholder engagement on governance issues] is something you want the other team to do,’ he tells Corporate Secretary. ‘IR professionals are normally hired because they know how to talk to the Street, but they may not know corporate governance issues well. Corporate secretaries understand the governance issues but don’t know how to talk to the Street. Investors don’t want to talk to heads of IR or corporate secretaries and have them keep passing the buck.’
OFF-SEASON ENGAGEMENT
At Visa, the IR and in-house legal teams have been working together on off-season governance outreach formally for the last three years, although collaboration between the two teams goes back further than that. When planning their outreach, the two teams examine the shareholder base, determine what time of year they want to do their outreach, decide the topics they are going to discuss and then work together on FAQs ahead of the outreach.
This collaboration has been crucial to Visa being able to field a diverse range of investor questions, Tracey Heaton, senior vice president and chief corporate counsel at Visa, tells Corporate Secretary. ‘On some calls investors want to talk about long-term strategy and the disruption of the technology industry, for example, while on others we spend the whole time talking about the board and succession planning,’ she notes.
Jack Carsky, senior vice president of IR at Visa, adds that his relationship with Heaton has had a positive influence on the work he does on the equity side. ‘The broader outreach is recognized by our analysts and is thoroughly applauded,’ he says.
The investor relations and corporate governance teams at Cisco have a similarly collaborative approach to shareholder engagement. ‘We’ve evolved our corporate governance program to be much more proactive on shareholder engagement,’ Marilyn Mora, global head of IR at Cisco, tells Corporate Secretary. ‘It’s absolutely critical that we listen and provide feedback to our investors on governance issues.’
Mora sits down with Evan Sloves, Cisco vice president and deputy general counsel, at the start of the summer to put together a calendar and target list for shareholder outreach, as well as the issues they would like to solicit feedback on. Sloves explains that the big issue they took to their investors last summer was proxy access. ‘We wanted to do it once and do it right,’ he says. According to Cisco’s proxy statement, the firm talked through its plans with investors holding 34 percent of shares outstanding. Mora and Sloves then briefed the governance, nominating and compensation board committees about the feedback they’d received. This dialogue, and buy-in from the board, meant Cisco adopted a proxy access bylaw, making it more investor-friendly, and got support at the ballot.
Visa’s and Cisco’s teams both underscore the importance of being proactive with governance outreach during the off-season – something Hope Mehlman, chief governance officer and assistant general counsel at Regions Financial, is also acutely aware of.
‘A lot of corporate governance engagement that you see grew out of a bad governance issue, like a negative say-on-pay vote, and we wanted to avoid that by being proactive,’ she tells Corporate Secretary. ‘We have engagement calls in August, September and October where we send out invitations to a large percentage of our top 50 institutional shareholders, and a few others that are active on corporate governance.’
Visa, Cisco and Regions Financial are all large-cap or mega-cap companies with larger-than-average budgets for shareholder engagement. That said, they also have advice for companies looking to initiate collaboration between IR and in-house counsel on off-season engagement. ‘Start small and targeted,’ says Heaton. ‘Be smart about who you’re reaching out to and when you’re reaching out to them. And plan in advance so that you can build [the outreach] into people’s calendars.’
Carsky agrees: ‘You don’t have to go too deep into the shareholder base to make a meaningful impression. This is something you can fold into other IR activities in cities like Boston, where Fidelity will come into the city for the right management team.’
PROXY STATEMENT
But with engagement comes the obligation for companies to show they’ve listened to and considered the shareholder feedback. As a result, dialogue around ESG issues has elevated the proxy statement to be ‘one of the most pivotal documents in a corporation’s annual communications,’ Patrick Tucker, executive vice president at Abernathy MacGregor, tells Corporate Secretary. ‘The more the attention rises on the proxy statement, the more you need IR to say what the investors want,’ he says. ‘The rise of shareholder activism and ESG has been a tipping point for IR getting involved.’
For Cisco, the off-season engagement provides Sloves and Mora with vital feedback each year to help them put together the proxy statement. This particularly helps when thinking about which information to prioritize and how to organize the compensation discussion and analysis, Sloves says. A recent change they made to Cisco’s proxy statement, based on shareholder feedback, was to provide more information on the CEO succession plan.
Without the input from IR, the proxy statement can easily revert to what it was for decades: a regulatory filing full of legalese, officials warn. One criticism of proxy statements is that they don’t reflect the image a company projects on its IR website, something that has come under scrutiny as a result of the SEC’s focus on disclosure effectiveness and uniformity.
At Visa, the shareholder feedback gained in the off-season has led to Heaton and Carsky ‘telling a broader story and taking a broader perspective’ in their proxy, Heaton says. The company has invested in an interactive, digital proxy on its website. Visa’s shareholder base has also become more globally diverse in recent years, which Carsky says leads to more scrutiny of the coverage of ESG issues in the proxy. For the first time this year, Visa launched a separate sustainability report to provide more disclosure for its investors.
PROXY ADVISER ENGAGEMENT
While off-season engagement and proxy statements are effective ways to communicate with the investor base, Tucker says companies should also pay close attention to proxy advisers. ‘IR officers and corporate secretaries should be treating ISS and Glass Lewis almost as additional shareholders throughout the year,’ he suggests. ‘They should engage with them on a consistent basis, not just when an activist puts a slate [of candidates] up or an ESG proposal gains steam.’
At Cisco, Mora and Sloves monitor the company’s ISS QualityScore. ‘We’re always looking at how it measures our company and how we compare with other companies,’ Mora says. ‘We regularly call ISS and ask it whether it understands our philosophy and strategy.’
Sloves agrees that this is an essential part of his collaboration with Mora, although he also cautions that they monitor Cisco’s ISS score purely as a reference. ‘We look at the score and work to understand why things are changing, but we don’t want to do governance for governance’s sake just to get a better score,’ he points out.
Mehlman says Regions Financial also monitors the company’s ISS score but knows it doesn’t represent a silver bullet for good proxy voting results. ‘There are a lot of institutional shareholders that subscribe to ISS, but the landscape has changed over the last few years and a lot of investors are now creating their own voting guidelines,’ she says.
This article originally appeared in the Corporate Secretary special edition on shareholder engagement. Click here to view the full issue.
Ben Ashwell
Ben Ashwell is the editor at IR Magazine and Corporate Secretary, covering investor relations, governance, risk and compliance. Prior to this, he was the founder and editor of Executive Talent, the global quarterly magazine from the Association of...
