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Shareholder Relations—Getting cozy with the activists

Gone are the days of smiling, nodding, and ultimately ignoring your shareholders. Patrick McGurn, special counsel, RiskMetrics Group, says the coming changes aren’t “the full plate we thought, but there is plenty to deal with. All eyes are on Washington to see legislation on a variety of SEC rule proposals and which ones will be in place for the next proxy season.” To be successful this coming proxy season, companies will need to be clearly communicating with their shareholders leading up to filing their proxies. “Companies that have constructive dialogue with their shareholder bases will be well positioned. Impending annual meetings with people that can vote you down on things that are not your fault [is a worry],” Jones of Ropes and Gray says, noting that the best way to combat no votes is talking with your shareholders ahead of time. Stephen Wallenstein, director, Directors’ Institute, and Senior Fellow, Department of Finance, Robert H. Smith School of Business, University of Maryland, agrees, warning, “Directors have to listen more to what shareholders are thinking. We’ve gone from a time when shareholders didn’t even vote their shares or voted with management to a time of activism. We have to be careful the pendulum doesn’t swing too far in the other direction because shareholders are diverse (hedge funds, institutional investors, and so on).”

Cifrino foresees a stormy proxy season. “The amendments to Rule 452 [which ends broker discretionary voting] combined with activists agitated about compensation and majority voting creates the perfect storm. So wake up and pay attention to who your shareholders are and what they’re concerned about.” But at the same time, experts say, make sure there is balance. “The boardroom is not a democracy. The board has to make decisions and we need to give them the freedom to do that,” says Grant Thornton’s Gazzaway.