The Toronto-based the Institute of Corporate Directors (ICD) published new guidance on Tuesday that aims to help corporate boards engage directly with key shareholders.
The guidance sets out six recommendations for developing board-shareholder dialogue.
The ICD believes “board-shareholder dialogue is beneficial and that directors can play an important role in engaging their companies’ significant investors,” the report says.
The corporate governance climate has evolved in recent years, the report notes, with a rise in activist investing, increasingly powerful institutional investors and increasingly influential proxy advisors.
This indicates a desire for “more shareholder influence over how companies are governed and overseen,” the report suggests.
“The tension caused by the current dynamics in our capital markets may be mitigated through direct and meaningful exchanges by directors with significant investors on issues of corporate and board governance,” the report adds.
The report also says that boards benefit from getting to know their company’s major shareholders. “It can provide the board with useful input on strategy and performance. It also allows boards to directly communicate their oversight processes and policies and, crucially, to better understand the views, motives, perceptions or concerns of investors,” the report says.
However, the report notes that at most companies there is no standard process for boards to follow that enables efficient, direct communication with major shareholders.
“While some Canadian boards have developed direct engagement policies, many directors remain unsure about how board-shareholder engagement should work in practice,” the report says. “Further, they question what constitutes good engagement and how a board avoids undercutting management and investor relations or contravening disclosure rules.”
The guidance was developed by an advisory committee whose members include: David Dension, chairman of Hydro One and former president and CEO of the Canada Pension Plan Investment Board (CPPIB); Peter Dey, chairman of Paradigm Capital and a former chairman of the Ontario Securities Commission; Gregory Boland, president and CEO of Toronto-based money manager West Face Capital; Eileen Mercier, the former chairwoman of the Ontario Teachers’ Pension Plan Board; Michael Wilson, the former president and CEO of Agrium Inc.; and Ian Bourne, chairman of Ballard Power Systems, Inc. and a member of the board of directors at CPPIB.
“We believe this paper is an important contribution to the discussion in Canada between companies and shareholders about how to work more constructively together for long-term success,” says Mercier, in a statement. “The advisory committee and the ICD believe strongly that boards of directors that work with their management teams and engage with shareholders can play a role in opening up more effective channels of communication and help build mutual trust.”