GIVEN the vast amounts of corporate governance information that companies have been forced to publish in recent years, the findings of a survey released yesterday may come as something of a surprise.
According to the survey by research firm Affluent Dynamics, which polled 200 high-net-worth investors and financial advisors, 67% of financial advisors and 58% of high-net-worth investors believe that companies do not provide adequate communications about their corporate governance practices.
Most also believe that boards operate in the interests of management instead of shareholders, while just over 10% think Sarbanes-Oxley has improved governance “a great deal.” The survey was commissioned by FTI Consulting and its communications subsidiary FD.
But we shouldn’t be the least bit surprised by these findings. That’s because corporate governance communication as it is currently practiced, particularly on the Web, is overdue to be overhauled. It’s no longer relevant to the realities of today’s more activist shareholder environment.
Average governance website conceived five years ago
Most corporate governance website sections today are dull, text-heavy libraries of policy documents that almost no one ever reads. They are classic compliance-driven products, the result of regulations or stock exchange rules.
The typical governance section on corporate websites today owes its existence to the New York Stock Exchange corporate governance rules that were first proposed in 2002 and subsequently approved by the SEC in November 2003.
Under the NYSE rules and parts of the Sarbanes-Oxley legislation, companies began posting on their websites policies such as their governance guidelines, committee charters, codes of conduct, articles and bylaws, and board contact information. Insider transaction disclosures were also once prominent on corporate governance sites, but that practice has strangely fallen out of favor.
The NYSE model is now the de facto global standard for Web-based corporate governance disclosure. This is in part because big international companies with U.S. listings brought the practices back to their home markets. Regulators in other jurisdictions also looked to the U.S. and felt they needed to keep pace.
However, while the NYSE model was a big improvement at the time — remember when a “Governance” webpage was a list of director and executive names with no bios? — the approach is now inadequate for the challenges of the day.
From involuntary disclosure to active communication
To keep pace with changing shareholder expectations, companies need to be more proactive in their governance communications. Deeds, not words, are most important.
Investors need to see evidence on corporate governance websites that companies are transparent. And they need to see that directors respect the role of shareholders and are accountable to them.
To do that, boards and companies will have to move beyond posting policies on their website to being more actively involved in online communication and engagement.
Most of all, forward-thinking boards and companies have an opportunity to develop a more consultative approach to their communications with shareholders and other stakeholders.
They should seek opportunities to engage their shareholders – both institutional and retail – through a variety of mechanisms and forums, including through improved use of the Web for shareholder meeting communications.
Ultimately, it makes little sense that relations between shareholders, boards and management should be so strained. After all is said and done, all sides in the debate have a common interest — seeing their companies succeed.
Fixing gaps in pay communication (October 10, 2007)
Shareholder meetings back in Web spotlight (October 8, 2007
AMERCO’s shareholder forum, e-proxy (July 11, 2007)