The Conference Board's Proposal for Improved Company-Shareholder Relations

By Cydney Posner

A couple of weeks ago, the NYT's DealBook, published "Another Proposal to Repair Relations Between Boards and Investors," , another effort by executives, board members and investors to address so-called "shareholder activism." (See my email of 2/3/14 for a discussion about a different protocol developed by the Shareholder-Director Exchange to address this issue.)

The Conference Board, together with a diverse group of advisers (including directors, institutional investors and academics), has compiled a set of suggestions to improve relations between companies and investors. According to the article, the Conference Board's recommendations "look beyond the push from corporate activists and aim to address a more basic reputation problem: by and large, the public doesn't trust big business. ‘From accounting scandals to the global financial crisis, events of the past decade have damaged the reputation of business, contributing to a public distrust of business in general,' the report reads."

While the suggestions don't seem to be particularly novel, they represent an implicit critique of current behavior and practice. First, the report recommends a commitment by all parties to listen and consider the perspectives of a variety of stakeholders, including their varied definitions of shareholder value: "Some investors may want a short-term rise in the stock price. Others may be looking for long-term returns. And still other shareholders may be concerned with minimizing a company's environmental impact. To create sustainable value, the Conference Board suggests, companies should listen to all these stakeholders." <

Second, the report reminds directors that they should listen to investors — not disregard the wishes of shareholders, even if they disagree. Likewise, investors "should be more transparent about their policies and positions, the report contends. And instead of simply relying on the advice of proxy advisory firms like Institutional Shareholder Services and Glass Lewis, investors should conduct their own research before voting on corporate governance matters." Proxy advisory firms, the report recommends, should disclose in their company recommendations whether they have been paid by that company for consulting services or any other potential conflict of interest. And the report suggests that the SEC mandate "fewer comprehensive disclosure requirements for companies, and [provide for]more scrutiny of — and changes to — the proxy voting system."

According to the article, the report recommends that compensation policies "support ‘sustainable' shareholder value. In other words, bonuses that reward a short-term sale of the company are unlikely to win the trust of investors, or the public."

In contrast to the protocol developed by the Shareholder-Director Exchange, the Conference Board is critical of constant board-shareholder engagement, arguing that "[o]verengagement can lead to systemic overload and inefficient use of limited resources." Instead, engagement should be used only in "special circumstances."

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