Public firms begin to follow SEC rules for board comms

NEW YORK: Public companies are beginning to comply with a new Securities and Exchange Commission rule that requires them to provide a way for shareholders to communicate with board members (or to explain why they don't think such a procedure is necessary).

NEW YORK: Public companies are beginning to comply with a new Securities and Exchange Commission rule that requires them to provide a way for shareholders to communicate with board members (or to explain why they don't think such a procedure is necessary).

Under the SEC rule, finalized in November, public companies must comply with the requirement in proxies or information statements sent out this year. The rule, in the wake of the accounting scandals, is intended to lift the veil off board operations. The New York Stock Exchange now has a similar rule for its listed companies.

The SEC requires companies to explain how their procedures for shareholder-board communication work, if they have them, and, if shareholder messages aren't sent directly to directors, what the process is for screening them. Other than that, the rule does not provide much direction on how companies are supposed to do this, and there are various wrinkles in their approaches, which can typically be found in the corporate governance sections of their websites.

In its March 12 proxy, Eli Lilly for the first time included information about how shareowners can contact its board. In Eli Lilly's case, such communication is allowed only through postal mail. "We believe that requiring a written communication will weed out some of the spam or solicitations the directors will otherwise receive," said Terra Fox, financial communications manager at Eli Lilly.

General Electric Company has had its policy up since November 2002 - long before it needed to. Shareholders can contact the board by postal mail, e-mail, or telephone.

Campbell Soup Company has an elaborate policy, which, among other things, notes that its employees are not allowed to retaliate against anyone who raises concerns.

Pfizer's policy is elaborate in spelling out what kinds of messages it won't send along to the board, such as junk mail, product inquiries, resumes, and "material that is unduly hostile, threatening, illegal, or similarly unsuitable."

Earlier this month, a joint task force of the National Association of Corporate Directors and the Council of Institutional Investors released a report on the best practices for improving communications between the board and shareholders.

The task force found that the two biggest impediments to providing such a communications channel are fear that directors will be overwhelmed with messages and (ironically) fear that they will violate Reg FD, the SEC's ban on companies selectively disclosing information.

The report is available at both groups' websites (www.cii.org and www.nacdonline.org).

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