Excellence in communications strategy and implementation has long been management’s purview. Savvy businesses have an ongoing commitment to corporate communications, investor relations and transparency. The smarter they communicate their messages and the more acutely they listen to stakeholders, the fewer costly surprises they’ll receive.
What about boards? Communications has not necessarily been a forté or a concern of corporate boards in the past. But that may be changing. A few recent situations and a growing number of experts both point to the same truth: building and managing shareholder confidence and corporate reputation will increasingly require boards to adopt communications strategies that work in unison with, and sometimes independently from, management.
Listed interviewed board advisers, service providers and directors on board-specific communication issues and found communications’ importance growing, sometimes hesitantly, in three critical areas. First, there is the beginnings of a movement toward showing the human side of board members, as the Internet gets used as a powerful tool to describe who directors are and what strengths they bring. Secondly, boards are increasingly engaging directly with shareholders face to face and through other channels, using simple language to communicate their messages and making early efforts to reach out for feedback. And thirdly, behind the scenes, boards are independently hiring communications counsel to help manage corporate reputation not only in times of turbulence but in an ongoing fashion.
A growing number of large-cap Canadian corporate boards have entered a new frontier—gaining a stronger personal connection with their constituents, including shareholders, media, analysts and consumers. Directors’ photographs, unseen only a few years ago, now routinely accompany biographies on corporate websites. A few of these companies have even posted video talks by directors. Case in point: PotashCorp.’s (TSX:POT) website has carried a video interview with board chair Dallas Howe since 2010. Another: TD Bank (TSX:TD) chairman Brian Levitt did a video for its website in 2011, talking about the importance of corporate governance, and acknowledging staff for their dedication to the bank. (Both companies, not coincidentally, are frequent award winners in the communications, investor relations and corporate reporting fields.)
“This is a very cutting-edge area,” says Andrew MacDougall, partner at Osler, Hoskin & Harcourt LLP in Toronto. “There is a push by institutional and other shareholders to have meaningful engagement with directors, to get the message from the top, so the board is not just a faceless group in the background. They are not just people locked up in an ivory tower anymore. This has grown up over the last three or four years.”
Use of the website as a tool for better communications not only enhances shareholder engagement, it also gives boards the ability to control the message and reach out to a broad audience, says MacDougall. Stakeholders consume those messages from wherever they happen to be in the world. “The cost is very, very small. So to me, it is an amazing and powerful tool. We need to see more of it. We’re still on our way there.”
In the future, he predicts, more companies will use their website as a way to promote corporate governance practices, as TD and Potash have already done. “Companies will take advantage of videos to provide the perspective of the chair of the board or chair of the compensation committee.”
But how many do so is an open question. Shân Atkins, a professional corporate director on a number of mid-market boards in the U.S. and Canada, including Tim Hortons Inc. (TSX:THI), is skeptical that the practice of posting director videos will catch on too widely. “I think it’s atypical,” says Atkins. “From where I sit, I can’t imagine this becoming commonplace in the U.S. mid-market. Perhaps it would be different for the GEs or Coca-Colas, but smaller companies are unlikely to do this anytime soon. And I think it remains to be seen whether there will be a lot of uptake in Canada.”
While the jury is still out on public video messages from board chairs, there is plenty of evidence that boards will soon communicate more clearly and more regularly with shareholders.
This can’t come soon enough, says Peter Block, partner and practice lead in financial communication at National Public Relations in Toronto. There is a longstanding chasm between directors and shareholders, perpetuated in the marketplace by reliance on third parties, he explains. “Shareholders elect directors to represent their interests. Directors delegate day-to-day work to management. Shareholders delegate voting to proxy advisory companies. So, surprise, there isn’t a great relationship between directors and shareholders,” he says.
Historically, shareholders only really heard from the board once a year, at the annual general meeting. The purpose of ongoing communication is that it serves to build trust so that, when the chips are down, the board and the company have the resiliency to withstand a crisis or battle. “It intuitively doesn’t make sense that the only input directors get from shareholders is at the AGM,” says Block. “At a political level, it’s like the government only talks to voters at elections. It’s not exactly a recipe for good governance.”
MacDougall provides us examples of improved and more frequent communication materials generated by boards, specifically for the eyes of shareholders. For instance, photos and biographies of directors are becoming commonplace in proxy circulars. “You didn’t see this 10 years ago,” he says. “It gives investors a stronger feeling of connection.”
Another proxy circular innovation that began a couple of years ago and, according to MacDougall, accelerated last year, was the practice of including a letter from the chair of the compensation committee to shareholders highlighting key points about the company’s compensation practices. “The concern is that there is now so much detail in executive compensation disclosure that an executive summary is needed,” he adds.
Other items at the forefront of engagement are including directors in roadshows, so that they are receiving direct feedback from shareholders, and conducting conference calls between directors and shareholders (without management) to discuss what is in the proxy material.
Boards are also beginning to conduct online surveys with investors to measure sentiment on issues such as say-on-pay. The Financial Post recently pointed out that Barrick Gold Corp.’s (TSX:ABX) black eye, sustained this spring when seven major institutional investors attacked the company over executive compensation and rejected the co-chair’s bonus in a say-on-pay advisory vote, could have been avoided by instituting better communications between the board and investors.
On this front, Atkins is an agreement. She observes that boards in both Canada and the U.S. are refining communications to shareholders, making them more straightforward. “Boards are trying to explain themselves better in clear language that consumers and investors understand,” she says. “Every board these days is serious about governance; we take that responsibility very seriously. We try to explain ourselves clearly and understandably to investors, and the proxy document is one of the principal ways we do that.
“Two examples of better proxy disclosure,” says Atkins, who has been a director for 13 years, “are the fuller explanations we are seeing of directors’ qualifications, as well as simpler CD&As [Compensation Discussion & Analysis sections] which include more charts, bullet points and the like. These changes have become widespread.”
Plain language in proxy circulars is one thing, but one-on-one meetings between shareholders and directors is quite another, says Atkins. The latter is the kind of direct communication being urged by the Canadian Coalition for Good Governance (CCGG), Canada’s leading body of large shareholders, which is encouraging boards to sit down with them to discuss issues and practices. Currently, it’s in the midst of a year-long campaign to meet with representatives from 45 to 50 boards to discuss governance and compensation issues. This program started about five years ago and has led to meetings with boards at more than 100 of the largest Canadian companies.
Such efforts notwithstanding, Atkins says she isn’t seeing these kinds of communications picking up much traction. “On my boards, directors are really not engaging in conversations with individual shareholders. That is fraught with difficulty, and with legal risk given the selective disclosure prohibitions. Directors do not speak for the company; we perform our role collectively. We understand our role and do not overstep it.”
Hiring outside counsel
If communications planning is beginning to creep into the job description of certain board members, then professional help certainly may be required. Caroline Spivak, principal at Profile Communications in Toronto, is being hired more and more often to provide corporate communications counsel specifically to boards. “This has become a surprising part of my growth,” she says.
“Smart boards are coming to recognize that their corporate reputation is a key asset of the company. I’m not sure this had been a top priority in the past. If the board gets attacked, they need to be able to quickly respond. They can’t do risk management overnight. We are in a 24/7 open and transparent world. With citizen journalism, we don’t have the luxury of time.”
Spivak is called in during highly sensitive situations such as transactions, acquisitions, divestitures or a change in leadership. In these cases, boards are looking for independence from the expertise of the internal corporate communications people, who may either be in conflict or don’t have the manpower to dedicate to the issue. “You don’t want to overwhelm existing resources. Or perhaps it is so sensitive to the company’s reputation that the board wants outside counsel that is not mired in day-to-day operations. The board may need strategic thinking to just this potential project. We put together a plan in the event that this becomes a public matter. Many decide not to pursue it, so it’s a moot situation,” she says.
When she works with boards, she sits in on board meetings, to observe what she calls “editorializing” and get a sense of the landscape. She helps directors develop pre-approved scenarios or principles of action. “These often don’t see the light of day. We call it an Evergreen binder. But they have done the major legwork.
“Increasingly, the board is looking to protect itself and the enterprise. These are not gratitude appointments and friendship appointments any more.”
In the past, boards have hired outside communications counsel only in times of turmoil, but that is about to change, predicts Peter Block at National. “It is my sense that boards will be doing this beyond the one-off special situations. It will be more regular and broader,” he says.
David Salmon, senior vice-president of national sales and marketing at Laurel Hill Advisory Group in Toronto, agrees. “It is one of the underpinnings of a good engagement process that you are doing it continually,” he says.
Ongoing communications challenges for boards, for which they may seek outside counsel, include finding out who their key shareholders are, and then deducing those shareholders’ levels of investment, special interests, time available and appetite for dialogue. Directors who speak for companies may also require training on communicating and the limits to permissible disclosure. Block fully expects more boards to begin hiring outside counsel to help directors feel comfortable with presentation and listening skills. “Typically we do it for management, but it’s necessary to do it for boards,” he says.
As Canadian corporate boards increasingly become targets for scrutiny and activism, communications strategies traditionally used by management—boosting transparency, using plainer language, adopting smarter Internet outreach and instituting ongoing engagement with stakeholders—undoubtedly belong in the director’s toolbox.
Communications may not be on the agenda in most board meetings, but it’s certainly a focus for the future.