Is Every Conversation Illegal? A Follow-Up on Shareholder Engagement

In a comment on Jackson and Gilshan’s “Call on U.S. Independent Directors to Develop Shareholder Engagement Strategies” — which I discussed in a previous post — Robert A.G. Monks sounds pessimistic.

If I read him correctly, he doesn’t think we’ll ever manage to create “an open and trusting format” of the kind Jackson and Gilshan recommend, where shareholders may “discuss the full range of company business with a director.” Monks says that what’s “missing” from the American scene is precisely a “framework for effective shareholder dialogue,” but he thinks that will remain “only aspirational on our side of the Atlantic.” Why? because there are legal obstacles that make companies skittish: “Indeed, counsel for the board of a NYSE listed company has explained to me – patiently – why it would be illegal for an individual board member to meet with me to discuss company business.”

A longtime shareholder activist who has written about a range of corporate governance issues, Monks wields a great deal of authority on these topics, so I defer to his experience and hope to benefit from his insights. I can appreciate, too, how frustrating it must be to be told that the law — and what he calls “orthodoxy” — prevent discussion. But I hope he’s not recommending we resign ourselves to the status quo.

Understanding, respecting and obeying the law is one thing, hiding behind it another. It doesn’t sound as if the counsel at the NYSE-listed company was hiding or trying to put Monks off, but you can also easily imagine that companies might take refuge in the assertion that the law and orthodoxy just won’t allow them to meet with or engage shareholders.

As I said in my reply to Monks’s comment, it might be illegal for an individual shareholder to sit down and whisper about company business with an individual director, but that isn’t the only possible scenario. There are still good faith efforts to be made, on both sides. A circuit of small gatherings, thoughtfully planned and dedicated to a particular theme, could offer one model. Shareholder proxy resolutions offer another opportunity for conversation — among directors, shareholders and stakeholders — before the resolutions are submitted or come to a vote.

In many cases, the shared experience of the conversation will be just as important as, if not more important than the content.

So the point here is not to multiply examples, but to suggest (as Monks himself suggests at the end of his comment) that there is good work to do on this front. The challenge, as I see it, is to create meaningful opportunities for face to face conversation and communication — for ongoing, purposeful “engagement”; the basic aim is to defuse antagonism, allow people to make connections, or simply ensure that everybody is in possession of relevant facts.

That there are legal obstacles here is no reason to give up. To my way of thinking, it’s all the more reason to develop a framework that U.S. owners and directors can use.

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