Directors remain reluctant communicators. For years they have operated from behind the closed doors of the boardroom. Yet, the failure of some of the country’s most iconic companies as well as the devastating losses in stock portfolios have made investors wary: what’s going on in the boardroom?
In an effort to restore trust in the financial system, SEC Chairman Mary Schapiro wants to increase transparency and the quality of disclosure along with shareholder access to proxy voting.
Most boards are providing good governance. Longtime directors may be puzzled by the scrutiny and concern. “Directors need the tools of a politician,” says Stephen Davis of the Yale Millstein Center and a longtime observer and participant in the corporate governance community. “They’ve been able to assume support at annual meetings. That’s not the case anymore, not after the crisis. If boards handle it right, they can win the long-term loyalty of their investors . If they establish solid relationships with long-term owners—typically investors with longer time horizons—boards have more freedom to plan for the long-term.”
By tools of the politician, Davis is talking about persuasion, not just informing but rather respecting shareholder issues and concerns and responding appropriately. Not necessarily by doing what they ask but by providing an explanation of why a decision was made. Davis advocates that directors re-link with the owners of the company, the shareholders, a move that has long-term value for everyone. Accountability improves performance. He sees the single biggest motive for all the reforms of the past 25 years has been “a sense of voicelessness and helplessness” felt by major institutional investors.
The sooner directors see the opportunity and begin to take measured steps in crafting communication policies that meet the needs of their particular companies, the more directors become a force for restoring trust.