Top of Mind: Roy Dunbar, Director for Humana Inc, Johnson Controls International PLC and SiteOne Landscape Supply

Leading company boards will report in proxy filings for 2020 how they are responding to what they heard from shareholders in conversations the companies requested after the previous year’s filings.

Roy DunbarThese companies will have solicited investors representing as much as 80% of their shares with an offer to make independent directors available. Management may be on the calls and may provide a brief summary to open the conversation, but when an independent director is asked to be on the call, the investor wants to hear directly from a director, not management.

Investors, when taking up such an offer, have been most interested, in my experience, to speak to any or all of the following: the independent chair/lead director, the compensation chair and the governance chair. Subject matter could be anything on the mind of either the investor governance team or the fund manager and environmental, social and governance matters (ESG) are common as are deep questions on compensation practices, such as the structure of long-term incentives and alignment of pay-for-performance and questioning may be intense and intricate. One I recall dealt with the rationale for the composition of a peer group used in compensation planning.

Investors want to hear the voice of the board, its level of engagement and independence, and glean through the conversation a sense of board culture, vitality, plans for renewal, diversity and/or its focus on the “E&S.” Silently, a key question is “Are the directors awake and active?” Only the voice of a director can answer this — not that of management or of a consultant.

One major investor group representing millions of smaller investors has increased the number of such conversations from some 400 in 2014 to 1,000 in 2019. They do not speak to every company every year, however the conversations are not solely with large companies. They also speak with small and mid-cap companies where their holdings are significant. No matter the size of your company, being proactive with board shareholder engagement is important. Keeping the relationship evergreen is good in times when all is well and may be critical when there is a bump in the road!

W. Roy Dunbar is a 2015 Awardee of the NACD Directorship 100, an NACD Board Leadership Fellow and a member of the NACD Blue Ribbon Commission.


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