How Will Directors Respond to SEC’s Broker-Vote Rule?

The SEC’s July 1 decision to eliminate broker discretionary voting in directors’ elections could have significant consequences when it takes effect in the 2010 proxy season.  In a press release last week, the Conference Board suggested board members analyze the company’s current vulnerabilities with regard to activist investors and to “regularly communicate in compliance with Regulation FD and insider trading rules with the 10 largest institutional shareholders to inform them of the business strategy, including new efforts for improving shareholder value.”

It’s not just the company’s top ten shareholders who are watching.  In the face of the economic crisis and the ongoing volatility of the financial markets, doesn’t it make sense for the board to communicate what they do to provide oversight, represent all shareholders and add value?  After all, it’s the individual board members who will face “no” votes and risk failing to be elected.

The world has changed.  Directors can no longer operate from behind the curtain and expect that shareholders will understand that they are doing their job.  Directors have an opportunity to educate the less sophisticated investor and reassure the public at large that they take their responsibility  seriously. By communicating appropriately, directors show respect for shareholders and keep them invested in the company.