This past summer marked the six-month anniversary of the rule requiring companies to disclose the process by which shareholders can communicate with directors.
Richman
The rule did not state that companies had to have a process; rather, it required companies to disclose whether it has a process for communications by shareholders to directors, and if not, the reasons why. The procedures for such communications must also be disclosed, including details on whether the communications are screened.
Laura Richman, a partner at Mayer, Brown, Rowe & Maw, acknowledges that the regulation is a disclosure requirement and not a required course of action, but also notes that it has had a strong impact nonetheless. "Public companies do not want to be in a position where they have to publicly justify in their proxy statements why they do not provide a procedure for security holders to contact directors with their concerns."
Processes Vary
According to Richman, companies vary in how they provide such access to directors. Some companies require all such communications to be in the form of writing, while others also provide a phone number. And, while some companies provide email addresses for directors, "others do not offer this option, believing that it produces quick comments that are not as well-thought-out or articulated," Richman says.
At Ford’s governance Web site, for example, shareholders, customers, suppliers, and others are invited to write to the board either by email or regular mail. Other pages in the company's governance section also conveniently link back to this contact information page.
For $18.1 billion Cendant Corp., security holders and others interested in contacting the board are given several options, including mail, email, and telephone access.
At the company Web site, the "Investors Center" page provides the headquarters address for those who wish to mail comments, concerns, and questions to the board. In addition, correspondents may specifically contact the board’s presiding director, either at this same address or by email.
Anyone Communicating?
Bock
According to Eric Bock, Cendant's executive vice president of law and corporate secretary, “There has not been an increase in communication from the shareholder base as a result of the formalized system.” Bock says very few people have communicated by email, and no one has contacted the company by phone. The company has received no more letters than before the ruling went into effect.
Bock adds, “There has been an increase in communication on Cendant’s part just because management made a decision to improve transparency of disclosure in recent years and provide stockholders with more information about our businesses.”
RULE BACKGROUND
The rules strengthening disclosure requirements relating to shareholder communications with directors went into effect on Jan. 1, in time for the 2004 proxy season.
Chairman William Donaldson said at the time, “We also believe that better information about the processes of shareholder communications with boards lies at the foundation of shareholder understanding of how they can interact with directors and director processes.”
Disclosure requirements under the shareholder communications regulation include:
Whether a company has a process for communications by shareholders to directors;
If not, the reasons why it does not;
The procedures for communications by shareholders with directors;
Whether such communications are screened and, if so, by what process; and
The company’s policy regarding director attendance at annual meetings and the number of directors that attended the prior year’s annual meeting.
According to the final rule published by the SEC, registrants were required to comply with the disclosure requirements in proxy or information statements that were first sent or given to security holders on or after Jan. 1, 2004, and in Forms 10-Q, 10-QSB, 10-K, 10-KSB, and N-CSR for the first reporting period that ended after Jan. 1, 2004.
As an alternative to providing the information in the annual meeting proxy statement, a company may include this information on its own Web site and disclose the Web site address in the hard copy proxy statement.
The fact that Cendant is already putting out more information and therefore improving transparency may be part of the reason it is not hearing more than before from security holders.
As a result, Cendant has not needed to increase staff to handle shareholder communications.
Variations On A Theme
Not all companies appear to be so thorough or forthcoming.
Peoplesoft’s Web site, for example, provides only one way to find out how to contact directors: a link to the proxy statement. Those willing to scour the 2004 51-page PDF would find on Page 10 the email and postal addresses for contacting the board.
A survey of director communications procedures conducted earlier this year found that other companies, like $4 billion Qualcomm, had no processes at all. "We believe our responsiveness to stockholder communications to the Board has been excellent," wrote the company in its proxy statement, noting that formal procedures were in the works.
The company has since noted that stockholders wishing to communicate with the board "should be directed to provide their communication to the General Counsel," who would then forward communications to the company's governance committee chairman. Neither email addresses nor phone numbers are provided.
Pfizer, by contrast, provides visitors to its governance Web site the option of writing by email to chairs of their audit, compensation and corporate governance committees or communicating with outside directors as a group. Pfizer provides the various email addresses.
In addition, Pfizer directs the reader to write letters to any of the committee chairs or to the outside directors as a group in care of Margaret Foran, vice president of corporate governance and secretary.
Communications are distributed to the board, or to any individual directors as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, the Pfizer board of directors has requested that certain items which are unrelated to the duties and responsibilities of the board be excluded, including product complaints.
We've made available a refresher on the rule in the box above, right, as well as examples of recent disclosures and the communications policies of companies mentioned in this article.
No comments yet