Business / Companies

Activist stampede pushes board directors into shareholders' arms

(Agencies) Updated: 2015-11-13 09:46

A few days after joining the board of Atlantic Power, private equity veteran Gilbert Palter said he got a flurry of calls from the energy company's top shareholders, who wanted more than just to wish him well.

"They wanted to hear my perspective on the company. And they wanted to bend my ear with their own thoughts," said Palter, co-founder of EdgeStone Capital Partners in Toronto. He said he's mindful of not speaking for the company but rather as a member of the board.

The rising power of activist shareholders has added a new responsibility to the role of board director at a publicly traded company: investor relations.

From JPMorgan Chase & Co to Microsoft Corp, and Johnson & Johnson to Apache Corp, board directors across North America have increasingly begun serving as a bridge between institutional investors and corporate management teams.

In the role, which barely existed at most companies five years ago, board members must be careful to avoid sharing inside information or to interfere with a CEO's own communication with investors.

Director engagement with investors is an evolving trend, though it's developed to the point where board members are now embarking on "corporate governance road shows" in the autumn, to gauge investors' views and to ensure their support at the annual meeting in the spring.

"Most directors do not go out willy-nilly and speak to shareholders," said Wendy Lane, who serves on the board of insurance company Willis Group and investment research firm MSCI Inc. "However, I have become friendly with institutional investors, and when I see them, I pick their brains about what they're thinking about in terms of the companies I serve."

Director engagement is yet another sign of how activist hedge funds, equipped with more than $150 billion of spending power, have changed the dynamic inside executive suites-a dynamic that is now intensely focused on preparing against attacks by dissident shareholders.

The trend also underscores the increasing value and complexity behind the role of board director, which has evolved from attending a few meetings per year to being a hands-on ambassador, schooled in corporate governance issues, pay structures and shareholder views.

Of the S&P 100, 65 companies disclosed specific shareholder outreach initiatives in their most recent proxy statements, compared to eight in 2010, according to executive compensation data firm Equilar.

The disconnect between management teams and investors was laid bare when companies starting receiving poor scores regarding executive compensation from mutual and index funds after the 2008 financial crisis.

That was followed by a wave of activist campaigns and proxy fights that overthrew boards and rejigged balance sheets, thanks in large part to support from big institutional investors.

JPMorgan's lead independent director, former ExxonMobil CEO Lee Raymond, oversees the board's shareholder engagement initiative, which in 2014 included around 90 calls and meetings on governance and compensation topics with shareholders representing around 40 percent of the company's shares, its proxy statement says.

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