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Trends in the boardroom and corporate governance emerged as key themes for 2016 at a recent National Investor Relations Institute (NIRI) Senior Roundtable conference. And the two are closely related. With virtually all public companies concerned about attracting Bill Ackman, Carl Icahn or other less well-known activist investors into their stocks, having rock-solid governance practices removes a common criticism activists can turn against management.
So if companies head into the new year with a staggered board or executive compensation that isn’t aligned with their peers, this is the year to make changes – or at the very least, show the Street a commitment to taking action.
The dynamics of the public company boardroom have shifted, according to Gina France, a consultant who serves on several public company boards. Directors are more frequently a strategic thought partner for the executive team versus a group of people who sit through a series of prepared management speeches. Instead, it’s a two-way street where management is soliciting board members’ input and contacting directors between meetings for advice. The networks of resources board members have can also be useful to companies, according to Ms. France. For example, when one of her companies was embarking on a CRM initiative, they were able to tap a member who had recently been involved in the same process. That saved time and helped surface top-quality vendors.
This discussion-oriented and thoughtful board-management relationship seems to be healthier and more useful than the bygone days of more tightly controlled communication from the leadership team and the resultant rubber stamp by the directors, without question, clarification or challenge.
In our current era of activist investors, executives need all the wisdom, experience and perspectives that a skilled, engaged board can provide.
To give their best counsel, directors must know what Wall Street analysts and investors think about their companies’ strategies and messages – and any vulnerabilities that an activist could exploit. That’s why perception audits are frequently solicited to take the pulse of key investor stakeholders and decide if any course corrections are needed. It’s simply good communication to discern where the Street agrees with management and where there are disconnects.
This research informs the boardroom and keeps the voice of shareholders squarely in front of directors and the executive team. This is part and parcel of the “best practices” corporate governance that public company leaders should strive for in the new year.