CSj takes a look at new best practice recommendations for corporate secretaries on shareholder engagement.

Since the launch of the UK’s Stewardship Code in 2010, shareholder engagement has been climbing the corporate and regulatory agenda around the world. The focus has been on encouraging companies to be responsive to investors’ concerns and to facilitate the engagement process, and on encouraging investors to take their share ownership responsibilities seriously.

These developments have been watched closely by members of the corporate secretarial profession. Corporate secretaries have a recognised role in facilitating dialogue between companies and their shareholders and there is great potential for utilising the corporate secretary role to improve the quality of that dialogue.

‘We think what is missing in the [shareholder engagement] debate is the significant role that the corporate secretary plays in the process. Corporate secretaries serve as an essential liaison between investors and corporate boards,’ commented Katherine Combs, President of Corporate Secretaries International Association (CSIA), and former Chair of the Society of Corporate Secretaries and Governance Professionals in the US, at a CSIA webinar held in April this year.

The webinar launched a new CSIA publication – Shareholder Engagement: Practical Steps for Corporate Secretaries – which is now available via the webinar link in the news section of the HKICS website: www.hkics.org.hk. This, the third publication from the CSIA (it previously published 20 Practical Steps to Good Governance in 2010 and Governance Principles for Corporate Secretaries in 2013), provides an international best practice benchmark for the role of the corporate secretary in shareholder engagement.

Maintain an ongoing dialogue

One of the main messages to emerge from the new CSIA guidance is the need for an ongoing dialogue with investors – shareholder engagement should not be a once-a-year issue in the build-up to the AGM. ‘Communications (of some form) with investors should be regular and routine. Companies should not wait until a crisis or a serious issue develops before engaging in a dialogue with investors,’ the guidance states.

The guidance, as with previous CSIA publications, has a practical focus. Regarding communication channels with investors, the CSIA recommends that corporate secretaries should obtain a list of their company’s largest shareholders and the name and address of the persons designated by each institutional investor to handle proxy voting and engagement on issues of corporate governance.

The corporate secretary is often the first point of contact for shareholders, but different companies may have different arrangements in place. Whoever is delegated to this role, the CSIA makes it clear that the company has an obligation to disclose the identity of persons charged with the responsibility of communicating with investors.

The CSIA also points out that companies should be aware of the new technology available to facilitate dialogue. ‘Corporate secretaries should, if practicable, utilise available technology to enable shareholders to communicate with senior management and the board, and to participate virtually in the annual meeting of shareholders,’ the guidance states.

Maintain a two-way information flow

Another key message to emerge from the new CSIA guidance is the important role the corporate secretary plays in maintaining information flows, both internal and external.

Informing investors

Corporate secretaries need to communicate regularly with all investors, including retail investors, proactively informing them of significant developments. The channels used for these communications will differ from company to company, but an obvious starting point would be the corporate website. Updates can also be included in the envelope with each dividend cheque. Other companies organise ‘investor days’ or visits to company facilities and arrange for face-toface communications with senior management and/or directors.

Companies should also establish channels to receive feedback from investors. The AGM has traditionally been one of the primary opportunities for investors to do this, but companies need to have a year-round channel such as an email address or hotline to receive shareholder comments or questions.

Similarly, in the interests of transparency, the CSIA recommends that companies should establish a shareholder engagement policy and publish it on their websites. ‘The corporate secretary is usually charged with the responsibility for drafting such a policy based on the relevant corporate governance practices, submitting the policy to the board or relevant board committee for approval and implementing the policy,’ the guidance states.

Informing the board and senior management

As well as informing investors about developments in the company, the corporate secretary also needs to inform the company about developments relating to investors.

This means, of course, that corporate secretaries will themselves need to remain well informed about investors’ concerns.

The CSIA recommends that corporate secretaries should regularly monitor investor websites and the corporate governance and proxy voting policies of their significant investors. It also recommends regular monitoring of press releases, shareholder proposals or other public statements or filings by investors. In addition, the CSIA points out that joining investor associations may provide a valuable opportunity for corporate secretaries to hear about, and respond to, investor concerns.

Kieran Colvert, Editor, CSj

The CSIA’s ‘Shareholder Engagement: Practical Steps for Corporate Secretaries’ is available in the news section of the HKICS website: www. hkics.org.hk. Readers may also be interested in the guidance prepared by the Institute of Chartered Secretaries and Administrators (ICSA), ‘Enhancing Stewardship Dialogue’, which is available on the ICSA website: www.icsa.org.uk.


SIDEBAR: A 10-point guide to the company secretary’s role in shareholder engagement

This guide is extracted from the presentation by Philip Armstrong, Senior Advisor, Corporate Governance, International Finance Corporation, at the International Corporate Governance Network (ICGN) Regional Conference in Madrid this year.

1. Identify your shareholders

Company secretaries are usually responsible for ensuring that the company’s share register is well maintained and up to date but, more significantly, they would take a close interest in who is in fact registered as a shareholder and as far as possible seek to identify who are the primary or major beneficial shareholders that sit behind the registered shareholder.

2. Understand your shareholders’ views

The company secretary would then seek to understand the investing philosophy and/or strategies of the major or key shareholders and any particular issues that they may be well known for in regard to the governance practices in other companies in which they are invested. This might provide important intelligence on how they might vote in the company’s shareholder meetings and how they might respond to some of the existing governance practices in place in the company. This is information that the company secretary would no doubt share with the board chairman and the CEO in shaping any tactical responses to shareholders who could have an important influence over the company’s governance and operations in discussion with the board and management as appropriate.

3. Develop a trusted relationship with your shareholders

The next step would be to develop a trusted relationship with the major or important shareholders where a natural contact point is established between the company secretary and the shareholder in question. This would allow the company secretary to play both a pre-emptive and reactive role:

• pre-emptive where the company secretary becomes aware of issues important to the shareholder that are not within the company’s existing governance framework and may require explanation, and

• reactive where the shareholder has picked up an issue that may require further explanation on the part of the company and has contacted the company secretary to elaborate.

This doesn’t happen overnight, clearly, but is a valuable investment of time if done well and with all the caution that one should follow in terms of the nature of information discussed. Regulatory constraints should of course be properly observed, particularly with regard to market-sensitive information.

4. Maintain a dialogue with shareholders

The company secretary may be aware of events or circumstances where the sharing of information with a shareholder might be helpful in their better understanding of the business, such as new products or a new factory opening or a customer/supplier briefing or perhaps introducing them to new board members as part of the induction of new board members.

5. Remain vigilant to emerging issues of importance to your shareholders

The company secretary needs to be aware of important or prevailing issues among institutional investors that may be relevant to the company and its governance, especially if it is being led or supported/endorsed by one of the key shareholders in the company. Remember that a shareholder need not have a large or major shareholding in the company to generate considerable influence over its governance.

6. Inform your chairman and the board

The company secretary needs to ensure that this information is being suitably summarised and presented to the chairman and the board with some indication of how or why it is important, and what the board may want to be considering in terms of the company’s existing governance arrangements, structures and disclosures. If sufficiently important, this may take the form of information that the company secretary would proactively share between board meetings and not just at the next meeting, operating under the adage of ‘being forewarned is to be forearmed’.

7. Work closely with your company’s investor relations team

The company secretary needs to ensure that much of these efforts are carefully synchronised with the company’s investor relations department if one exists, though this is not always the case other than in the more sophisticated markets or with very large companies. Where appropriate, the company secretary would be contributing to the strategies and tactics for dealing with various shareholders and this is especially important nowadays given that shareholders have increasingly diverse (and sometimes conflicting) objectives.

8. Monitor the views of industry associations

In some markets, where investors may work under industry umbrella organisations like the Association of British Insurers in the UK or investor coalitions such as Eumedian in The Netherlands, the company secretary should understand the key issues that these organisations may be representing on behalf of their clients and how this informs the way the board is advised to respond by the company secretary.

9. Don’t neglect your retail shareholders

While many markets are increasingly dominated by institutional investors, it is important not to forget the retail shareholder. The company secretary is very often the first port of call for these shareholders who may have questions that range from the routine to something that may signal a possible challenge to the board that will take place publicly in a shareholders’ meeting such as the annual general meeting and quickly be picked up by institutional investors.

10. Use your knowledge gained to inform your communication strategies

My final point is that all of these interactions help inform the information requirements of the market and what should be on the website and other forms of communication put out by the company, and how the chairman and the board along with the CEO should be thinking about the preparations for the annual general meeting.

Philip Armstrong, Senior Advisor, Corporate Governance, International Finance Corporation (IFC), is an internationally acknowledged expert on corporate governance. More information is available online at: www.ifc.org/corporategovernance.