Proxy Resolutions, Shareholder Engagement, and Buggy Whips

Part Two of Two Parts

The TakeAway: Shareholder engagement is on the rise, but can benefit from “transmedia mobilization”—that is, a greater understanding, adoption, and experimentation with a range of digital tools, including (but not restricted to) social media.

As we wrote Monday, the rapid proliferation of social media and other digital “technologies of freedom”, as the late, great MIT professor Ithiel de Sola Pool called them, have outpaced the ability of shareowner activists, corporate accountability advocates, company boards and managers to keep up. Meanwhile, proxy voting and corporate engagement are more robust than ever—the latter most often conducted in private, a form of “quiet diplomacy”, as pension giant TIAA-CREF calls it, enabling informed dialogue among investors, board members, and senior executives that boosts value creation. TIAA-CREF isn’t alone: Most company / shareholder engagement remains private, according to the authors of a groundbreaking study on the topic.

Add to the mix various new settlements in cyberspace across various platforms, where an eclectic group of players interact on a regular basis.  Whether through Twitter, LinkedIn, or Facebook, early adaptors are clearing the way for broader, more innovative modes of expression.  Earlier today, longtime good governance proponent’s James McRitchie – himself a digital pioneer – provided a roundup on “Social Media for Directors”, a hot topic these days.  Last week, featured an article on “Social Media Networking: Quick Tips for Busy Directors”, in which Marcus Ventures’ founder and CEO Lucy P. Marcus, another digital homesteader and board member of several businesses and nonprofit institutions, said, “It’s very clear that social media have become part of the fabric of our professional life. It’s a place where companies are talked about and where professional discussions are happening. As board directors, we ignore this at our peril.”

And major professional associations and consulting firms such as the National Association for Corporate Directors (NACD) and Broadridge, along with a cadre of smaller shops, are scrambling to catch up, offering workshops and services on how social networking can promote innovation, improve performance, and enhance value.


So how can you reconcile both behind-the-scenes and public-facing modes of engagement?  When organizing for greater corporate sustainable accountability, what’s the right mix of “old and “new” approaches, spanning various platformssomething Harvard / MIT scholar and media maker Sasha Costanza-Chock calls “transmedia mobilization”? And, in a post-WikiLeaks era, how can this migration toward greater openness and exchange maintain privacy safeguards so important to business competitiveness?  (In early February hackers broke into Nasdaq’s computer systems, signaling the vulnerability of board portals.)


These are open questions worth serious reflection and discussion, a missing ingredient in last week’s fine pair of webinars on the upcoming proxy season and the state of company / shareholder engagement.  On the latter, here’s an overview of what we learned.

Shareholder / Company Engagement | Last Tuesday, the IRRC Institute and Institutional Shareholder Services (ISS) held an excellent webinar to present findings from a major study of issuer / investor communication.  Study author Marc Goldstein, ISS Head of Research Engagement, and Jon Lukomnik of IRRC Institute presented results of The State of Engagement Between U.S. Corporations and Shareholders, which represents the first attempt to benchmark the dialogue between public companies and their investors.

The research, commissioned by IRRC Institute and carried out last spring by ISS, had two overall objectives:


(1) assess current engagement practices in the US, and


(2) provide metrics to understand the quantity of engagement; topics discussed; key impediments; and measures of success.


Both survey data and in-depth interviews were analyzed, roughly divided between 335 companies (including small, mid-cap, and large-cap firms in all sectors) and 161 institutional investors, including both asset owners (e.g., pension funds and trusts) and asset managers.


Even as calls for greater board – shareholder engagement abound, many corporations consider it worthwhile, Lukomnik and Goldstein said.  Fallout from the financial crisis helps drive the movement for engagement, along with regulatory changes and governance reforms during the past decade.  Yet, they said, there’s little empirical understanding of the implications for practice. “We hope that, going forward, the analysis proves useful for issuers, investors and policymakers,” Lukomnik said. Among the key findings (the full presentation is online):

  • “Engagement” means different things to different people. Procedurally, engagement can involve letters, phone calls, in-person meetings—but also changes in ownership (contained in 13-D filings to the Securities and Exchange Commission), shareholder proposals and Vote No campaigns.  Substantively, engagement typically focuses on financial results / strategy; executive compensation;  corporate governance (board structure/leadership, voting standards, takeover defenses); environmental and social issues; sustainability; mergers and acquisitions (M&A); and proxy contests.
  • Engagement’s on the rise, but those who engage are highly specialized intermediaries, not beneficial owners. Asset owners tend to outsource engagement to portfolio managers and corporate governance / proxy voting specialists.  Companies, according to Lukomnik, report higher levels of successful engagement than do investors, relying on C-Suite personnel – such investor relations; general counsel; corporate secretaries; senior executives – or in some cases, independent directors.  “Investors like to engage with directors, and not with lawyers,” Goldstein said, while the vast majority of engagements between issuers and investors are never made public.  Still, a significant number of investors surveyed don’t engage at all.
  • Respondents cite time, staffing, and regulatory concerns as impediments to engagement. For a “significant minority”, philosophical differences and a belief that engagement is a distraction from maximizing value also were expressed.

Getting Connected | Social media was not included in The State of Engagement report, Goldstein said, but acknowledged the growing interest and use of Twitter, Facebook, and LinkedIn.  Nor was it mentioned as a campaign tool or vehicle for dialogue during the Proxy Preview discussion—although a new partnership among Moxy Vote, Confluence Philanthropy, and Sustainable Investments Institute (Si2) is a partial step in that direction.  They’re developing services, available in time for the 2012 shareholder resolution season, for foundations seeking an affordable approach to engagement and proxy voting.  And’s user-searchable data base enables access to information on all shareholder proposals that came to a vote between 2008 and 2010 for the 100 largest American public companies.

Aside from the social media pioneers on the corporate governance digital frontier, in general, both “engagement” and proxy voting appear to occupy a world of Walkmans and snail mail.  Stalwart institutions that have worked for decades on sustainable prosperity and justice now find themselves outflanked by the rapid growth of social media and other tech tools, augmented by handheld devices, wireless communication, and a constant parade of innovative applications.  They need to modernize their approach, to avoid becoming irrelevant.

Events in the MidEast demonstrate the power of social media in campaigns for justice and accountability.  Campaigns go only so far, of course—but then, so do proxy resolutions, which are nonbinding.  Campaigns do, however, draw attention to grievances and concerns in ways that can open up the space for dialogue and maybe even collaboration.  And, once proxy access emerges from litigation directorship campaigns will become a compelling priority.  (Within days after the SEC ruling on proxy access last summer, the U.S. Chamber of Commerce and the Business Roundtable filed suit in the D.C. Circuit Court of Appeals, claiming, in part, that shareholder nomination of director candidates violates a firm’s First Amendment rights; a flurry of filings ensued from proxy access supporters and opponents, with oral argument scheduled for April 7th.)

But campaigns, like social media, are but one of many options available and emerging to those who care about the constructive role of business in society.  As my colleague Bill Baue and I wrote last year, social media, when combined with other digital tools – such as almost-in-time reporting made possible by electronic tagging (“XBRL”), or real-time engagement among stakeholders and firms, even blended engagement for annual meetings – the prospect of greater value increases for companies and stakeholders alike.  That’s because new ideas occur through collaboration, from learning from the people around us—even as they reside in far flung places.

Social media and other forms of electronic exchange will never replace face-to-face encounters, especially when discussing complex problems and forging solutions, but it can bolster shareholder power beyond regulatory requirements.  And it helps shareholders and companies avoid falling victim to the “buggy whip” phenomenon, using yesterday’s means for getting where they want to go.

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One Response to Proxy Resolutions, Shareholder Engagement, and Buggy Whips

  1. Great article. I think there’s a lot more to be done at the intersection of social media, citizen journalism, and corporate social responsibility.

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