Current Capital’s Managing Director and Advisory Board Member Comment in Agenda, the Boardroom Newsletter Delivered by The Financial Times
As Protests Mount, Directors Debate How to Respond
May 3, 2019
By Lindsay Frost
At the Verizon Wireless annual meeting yesterday, waves of protestors showed up with concerns about warehouse conditions and sexual harassment. Meanwhile, Boeing CEO Dennis Muilenburg also faced protestors last week following the fatal crashes of the 737 Max aircraft.
As stakeholders continue to gain momentum in gathering at company annual meetings, boards should prepare for how to respond, sources say. The majority of the time, these shareholders are employees or retail investors who hold small stakes in the company, but their complaints may be in response to valid concerns about workplace safety and misconduct that could mirror broader concerns among larger investors about the very same issues. Plus, protests at meetings can provide helpful information to board members about how a company’s public messaging has been received and whether communications from the company have sufficiently addressed pressing issues.
Agenda spoke with several board members and communications experts to determine how boards should respond to the smaller investors at annual meetings.
The answer: Do not ignore them.
“Annual meetings have the most potential peril to be contentious situations because they are public and anyone can show up, even if it is right outside,” says Eileen Kamerick, director at Associated Banc-Corp, audit committee chair at Hochschild Mining plc, and advisory board member at Current Capital Partners. “A lot of preparation involves, frankly, being willing to be pummeled and to listen.”
Sources say protests related to environmental and social issues relevant to the company’s bottom line are increasingly backed by larger institutional investors with immense voting power, which makes it even more important for board members to be willing to sit back and listen to what’s being said.
At the same time, some AGMs include small investors with a relatively minor or personal bone to pick with the board. However, even those investors deserve to be heard, board members say.
“Every [director] has been to an annual meeting where you get someone who, for lack of a better term, is off base and irate, but I think it is better not to just ignore them but try and be polite and address their concerns to the right person,” Kamerick says. “You should treat your shareholders with respect whether they own one share or 10,000 shares.”
Additionally, an issue that a smaller investor raises, such as a CEO’s pay package, can quickly bubble up and become a significant issue for larger investors, Steven Lipin, chairman and CEO of Gladstone Place Partners, a strategic and financial communications firm, writes in an e-mail.
“A consequence of turning a blind eye to this would be that the small, angry investor gets other shareholder support, and before you know it, you get a bad say-on-pay vote,” Lipin writes. “So, you judge the validity of a shareholder’s issue, you monitor, engage and step out in front of it. Assign investor relations to give the investor helpful, public information to counter their claims.”
Environmental, social and governance topics brought up by small investors are gaining traction with both small and large investors alike, so that is a good reason to address them.
Also, retail shareholders may bring their concerns to the media, compounding the matter and causing a reputational and public relations issue, Kamerick says.
Michael Maslansky, CEO at communications strategy firm maslansky + partners, writes in an e-mail that the risk is low when boards ignore concerned investors, and “[they] won’t create a new problem, but they [can] damage a CEO or board that is already weakened by scandal or poor performance.”
“For companies in the spotlight, angry shareholders can create or amplify negative narratives that might lead the board or management to take actions they would not otherwise think wise,” Maslansky writes.
But when shareholders that have very little traction across the investor community bring up issues that just don’t relate to the company, that might be a reason to ignore them, Lipin writes.
“It is important that no shareholder, particularly a small shareholder or one with a narrow agenda not necessarily focused on maximizing long-term shareholder value, monopolizes management’s time,” says Jon Foster, managing director at Current Capital Partners and director at Berry Plastics, Five Point Holdings, Lear Corp. and Masonite International. “These gadflies can be a waste of time — everyone wants their 15 minutes of fame.”
How to Respond
Maslansky writes in an e-mail that taking a similarly hostile approach with angry shareholders is not the right tactic.
“There is no way to convince a protestor that he or she is wrong, so fighting with one is not going to be successful,” Maslansky says. “The right strategy for boards is to know the issues, come prepared and acknowledge the concern.”
For example, at Wells Fargo’s recent annual meeting, interim CEO C. Allen Parker was interrupted numerous times by hecklers. He implored them to wait their turn to speak and noted, “One of the wonderful things about shareholder democracy in this country is that we have meetings like this.”
Several sources agree that creating a communication plan ahead of time is important.
“Preparation, coordination and consistency are key here,” Kamerick says.
Kamerick refers to protestors at annual meetings as a “crisis situation” that should be anticipated much like an earnings call with analysts demanding answers. For example, Kamerick says she brings in key members of finance and operating management teams to brainstorm tough questions that may be asked in an earnings call to determine the best approach in responding. The same approach should be taken with annual meetings, she says.
“I think boards don’t really rehearse this much until a crisis hits, but they should at least have the basics down,” Kamerick says. “Think about the worst thing that can happen and how to respond to it. Everyone in the C-suite and on the board should understand the protocol for who will speak to shareholder[s] and the media so that directors know what to do if confronted by a shareholder or protestor.”
In terms of who should address the shareholders, sources say it largely depends on the question. It is typical for CEOs and management to take the lead on communicating for annual meeting items, but a lead director or chair should be available and prepared to respond to questions.
Lipin writes that, if a shareholder addresses the board in general, the chair or lead independent director should be prepared to respond, “but good judgment is needed.” During the annual meeting and outside of it, Lipin says, only the directors who the board agrees are the best communicators should engage, rather than the full board.
“If the investor is small and is making arguments that don’t hold a lot of weight, a director can assess the situation and respond with a strong grasp of the company’s strategic messaging, or offer a polite response but not engage,” Lipin writes. “If they raise a legitimate issue, then yes, address them.”
Generally, the shareholder engagement landscape has changed, and no matter what tactic boards and management take, it’s best not to ignore any investor completely, sources say. Building relationships ahead of time is key.
Kamerick says boards should regularly track who owns the stock and focus engagement on key shareholders while integrating consistent messaging into analyst calls, investor days, the annual meeting and SEC filings to reach the broader shareholder audience.
“The narrative that boards of directors are insular, homogeneous and beholden to the CEO is slowly giving way to boards that are more active, diverse, [communicative] and independent,” Maslansky writes.
However, Lipin writes that, outside of the annual meeting, directors do not have to address all investors, because “there are simply too many investors with gripes ranging from angry to moderate.”
Maslansky writes if companies ultimately don’t have a communication plan in place for annual meetings, “they are getting terrible counsel from their advisors.”
“The trend [of protests] is going to continue,” Maslansky writes. “These meetings will get rowdier. Angry shareholders will get smarter, and boards and CEOs ignore them at their peril.”
About Current Capital Partners LLC
Current Capital Partners LLC is an independent advisory and merchant banking firm that provides mergers and acquisitions advisory, corporate management services, and private equity investing, primarily in middle market and smaller companies in the industrial and services industries. Current Capital’s mergers and acquisitions advisory services include actionable ideas and execution for investment firms and companies seeking industry knowledge; an independent perspective on strategic and capital structure reviews; and other related services focused on helping clients maximize value; its corporate management services include sitting on Boards of Directors and providing related consulting services for other investors and financial institutions; providing Chief Restructuring Officer services; and offering advice and expert witness services in complex corporate litigation; and its private equity investing efforts include primarily control investments where we have significant influence and where we can partner with management teams to accelerate profitable growth and create value. Mergers and acquisitions advisory services, and related products and securities services, are provided by our affiliate, Current Capital Securities LLC, a broker-dealer and member of FINRA and SIPC.
Jonathan F. Foster
Telephone: +1 212 223 0618