The Securities and Exchange Commission has proposed a series of rule amendments that would make it easier for shareholders to nominate directors to corporate boards. The SEC says it wants to address concerns of board accountability and current proxy rules that might be prohibiting shareholders from exercising their rights to nominate board members.
What does it mean?
Both large and small shareholders, even those with just 1% of a company's shares, could nominate a director under the 250-page proposal. There are certain restrictions, however, such as the nominating party having to certify that it is not trying to change control of the company.
Should the proposal pass, the two-way conduit of interaction between investors and IR professionals would be more critical, according to Jeff Morgan, president and CEO of the National Investor Relations Institute (NIRI).
Claire Koeneman, president of MWW Group's Financial Relations Board, suggested a more proactive communications approach will be necessary – one that might include bringing board members to investor meetings.
“We need to advise companies to campaign for their current board members all the time,” she said, “not just during proxy season when they're up for a vote.”
In addition, Thomas Davies, partner at Kekst & Company, said that agencies can lend value in this situation with their “daily contact with the marketplace,” but also by offering outreach preparation assistance, such as helping with messaging.
Where do we go from here?
Morgan said NIRI's position is that the proxy system is outdated, and its problems – transparency and use of technology among them – are in need of an overhaul, rather than being handled in this piecemeal fashion.
Even without this proposal, however, IR professionals agree that creating open lines of communication with investors is critical.
“The best defense against dissidents is a good offense,” said Koeneman.
The proposal is open for comment until August 17.