After years of activist-driven board takeovers, single-issue elections and occasional public name-calling, a group of heavyweight investors, corporate lawyers and board members have banded together in an attempt to keep proxy battles in check.
Representatives from institutional investors such as BlackRock and Vanguard have joined directors from Home Depot, JPMorgan Chase and Hertz as well as lawyers and advisers from firms including Cadwalader Wickersham & Taft and Teneo Holdings in a drive to head off unexpected shareholder revolt and strengthen directors’ communication with investors.
A working group of 17 investors and directors drove the formation of the Shareholder-Director Exchange (SDX) as ‘a broader template for discussing and addressing corporate issues in the normal course of business’, according to an SDX press release.
‘Market conditions as well as an increasing focus on better and more effective governance practices have demonstrated the necessity of direct communication between directors and shareholders,’ says group member Bonnie Hill, who serves as a director with AK Steel Holding, California Water Service Group, Home Depot and Yum! Brands. ‘There is a growing call for directors to engage directly with shareholders, but until now, the circumstances and conditions under which that engagement should take place have been unclear.’
The group hasn’t clearly described how it will function but SDX members have developed a protocol of 10 points regarding communication between directors and shareholders that companies and investors will be encouraged to adopt. The protocol is meant to encourage meetings between directors and long-time shareholders to discuss questions about company management and other issues.
‘Engagement with the companies in which Vanguard funds invest has long been one of the central tenets of our approach to governance and long-term value creation for our clients,’ says Glenn Booraem, Vanguard’s principal and fund controller, in the SDK press release. ‘The SDX protocol represents best practices of leading companies and investors, and it presents these practices in a way that fosters greater dialogue among market participants for the benefit of all investors.’
