Board-Shareholder Communications: Key Ingredient In Good Corporate Governance

Tuesday, February 25, 2014 - 14:01

The Editor interviews Robyn Bew, Director of Research, National Association of Corporate Directors (NACD).  

Editor: Please describe your role at NACD.

Bew: My background is in executive education and management consulting. I’ve worked for several years with non-executive directors on governance issues. I lead the research team, which is responsible for producing a wide range of NACD thought leadership, from our Public Company Governance Survey and Blue Ribbon Commission Reports to the co-publications we do with some of our key content partners. The team also helps NACD members day to day with their governance questions and works closely with our education team on our webinars and educational programming.

Editor: Lots of attention is being paid these days to improving board-shareholder communications. What’s NACD’s point of view?

Bew: At the most basic level, boards represent shareholders. A key role of shareholders is to select directors who are capable of directing management in the long-term interest of the company and its shareholders. We believe that the interests of boards and shareholders are fundamentally aligned. If you take that as the starting point, then effective communication between those groups is essential.

NACD has covered this issue in a whole host of different ways over the years. We partnered with the Council of Institutional Investors back in 2003 to create practical tools that boards could use to improve their communications with investors. We did a Blue Ribbon Commission report on board-shareholder communication a few years ago. At our board leadership conference last year, SEC Chairman Mary Jo White, who was our keynote speaker, emphasized the importance of clear and effective communication with shareholders.

Editor: How has the increase in shareholder activity over the past decade impacted how boards operate?

Bew: In the wake of the financial crisis, expectations for the frequency and the transparency of communication – from the board to investors, and to the public generally – have gone up. Dodd-Frank has been a big contributor to that with additional required disclosures related to risk oversight, director qualifications and executive compensation. But regulations aside, investors are and have been making it very clear that they expect to hear from boards about what they’re doing and why. Each individual board’s and company’s approach will inevitably be unique, but it is clear that boards are spending more time on making their governance processes more transparent.

Editor: What are some of the issues that come up in your conversations with directors and investors?

Bew: We are getting an increased number of inquiries from our members, who are very keenly interested in raising the bar in their role as board members: Do we have the most up-to-date committee charters? What are the best practices applicable to my specific role as a committee member or chair? How do our board processes compare to those of other companies? What are effective approaches to CEO succession planning? What role should the board and its committees play in risk oversight? These questions reflect interests and priorities that are coming from their key stakeholders, and certainly shareholders are a major segment of those key stakeholders. In general, we are seeing board and committee agendas getting more crowded and the issues they confront more complex. That means everybody has to raise their game.

In addition to the things we’ve already discussed, we’re hearing a lot about the role of so-called “activist investors.” It’s something that’s in the news a lot these days, and we hear about it from many of our members. But activist investors are not a monolithic group. They have very different interests, priorities and approaches to the way they engage with target companies. So, it’s critical for directors to know the specifics about who their company’s largest shareholders are, how the nature of those shareholders is changing over time and what their priorities are. Directors should also consider the most effective ways to hold management accountable for delivering on their performance goals.

And third, there has been a lot of focus on the characteristics that directors should have – making sure that a company has the right mix of diversity in terms of skill sets, perspectives, backgrounds and points of view. NACD sees the big question as whether those characteristics are going to be right for the future, knowing that we are in the midst of tremendous change in terms of demographics, technology, economic growth patterns, and more – major shifts that will have a significant impact on companies’ ability to compete and succeed. Our members are asking, how are we going to find the right people to fill those board seats and provide guidance to management teams as they navigate these changes?

Editor: Does NACD have training sessions for directors?

Bew: Education is a huge part of NACD’s mission. Each quarter we run our Director Professionalism program for newly appointed directors, as well as our Master Class program for experienced directors. We also have an ongoing schedule of educational webinars and customized in-boardroom education options. In addition, last year we launched an initiative called Directorship 2020, which is helping directors think ahead about what the requirements of the boardroom are going to be down the road and how they can position their boardrooms to be as effective as possible as the world changes.

Editor: Executive compensation has been a hot topic in the news of late. How is NACD helping its director members respond?

Bew: We hear a lot about required disclosures, which have been in the news in terms of rules that have been released or that are pending release by the SEC. In addition to ensuring their companies are in compliance with those requirements, directors need to be thinking as well about compensation philosophy and design. Are they doing an effective job at communicating how the CEO’s pay links to long-term objectives for the company?

NACD just published two resources to help our members respond to these issues. First is a set of priority recommendations for preparing the CD&A. At the end of last year, we brought a group of major institutional investors together to discuss their top recommendations for boards as they are preparing the compensation discussion and analysis statement for the 2014 proxy season. We were focused on that because we wanted to put together some very actionable, practical guidance that our members could use on an issue that we know has been in the spotlight and is garnering a lot of attention.

Second, last fall, we published NACD’s perspective on supplemental pay definitions. Many companies are deciding to include information in their CD&A statement that goes beyond the required disclosures that are mandated by the SEC about the relationship between pay and performance. They are using formulas for what is becoming known as realized pay or realizable pay to supplement the required disclosures, and to help their company tell its story about the relationship between executive compensation and company performance. We gathered input from our membership, compensation experts and a number of leading institutional investors, which helped to inform NACD’s perspective on both of those alternative definitions of pay.  

Both of these resources were developed with compensation committees and boards in mind, but we hope they’ll also be useful to corporate secretaries, corporate counsel, investor relations, and all the other staff who are actively involved in preparing compensation disclosures.

Editor: How is NACD engaging with the investor community to ensure directors are aware of investor expectations?

Bew: Board-shareholder communications and helping boards to improve their effectiveness have been a cornerstone of our work for years. A couple of specific things that I would point to would be first, the board committee-specific work that we do through NACD’s four Fortune 500 Advisory Councils. We have one for audit committee chairs, compensation committee chairs, nominating and governance committee chairs and a fourth council that we call the Advisory Council on Risk Oversight, which is a mix of audit and risk committee chairs. These are multi-stakeholder groups. They bring together sitting committee chairs from Fortune 500 companies, major institutional investors and regulators on a regular basis to have a dialogue together about how to raise the bar on committee practices. It’s really a continuous improvement philosophy. We extend open invitations to a whole range of big institutional investors, and many of them participate on a regular basis, including BlackRock, Vanguard, CalPERS, CalSTRS, T. Rowe Price and others.

The Councils help to ensure that directors are aware of investor expectations on a number of different levels. On one level, this happens through the very candid dialogue between the investors and the directors who are in the room with each other. At the second level, we publish takeaways from Council meetings to NACD members and the governance community generally. Finally, the ideas discussed by the Councils also help to inform NACD’s educational programming and publications, such as the pay definitions and the CD&A recommendations papers.

The second initiative I would point to is a follow-on to the CD&A recommendations paper. NACD is reconvening the participants in that work along with some other major U.S. investors.

We are going to hear from this group about the key corporate governance issues that they believe are important to institutional investors – the priority areas that they believe boards ought to focus on from a governance standpoint in 2014. Coming out of that effort, we will distill some practical takeaways and channel those out to our membership, as we did with the CD&A piece.

Editor: Corporate counsel play a significant role in the relationship with directors and the preparations for board and committee meetings, with the general counsel being present at board meetings and members of the legal department frequently acting as secretaries to the board and its committees. Does NACD offer any courses or activities that they would benefit from?

Bew: Yes. Last year, we piloted a general counsel program called The Effective General Counsel in the Boardroom. It covered how boards’ expectations of GCs are changing and how GCs are responding to those new expectations. The program provided an opportunity for participants to talk directly with experienced public company directors and veteran GCs about the successes, challenges, and lessons learned related to board/senior management communications. It was a big success, and we will be running it again in DC on May 29.


Please email the interviewee at with questions about this interview.

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