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Mid-Cap Governance Roadshows Trending Upward

    Client Alerts
  • February 23, 2015

It has been interesting to watch the evolution of governance roadshows from relative obscurity only a few years ago to standard practice, at least among large-cap public companies. The catalyst was the early-2011 adoption of the SEC’s say-on-pay rules, which exponentially increased institutional investor (and proxy advisor) interest in executive compensation. In short order, large-cap companies that had not already done so developed and implemented regular face-to-face meetings with their largest stockholders, who began not only to encourage such meetings, but also to take a dim view of companies that fail to offer them.

Nevertheless, while more and more mid-cap companies have implemented governance roadshows, many have not. The reasons can be as varied as the companies themselves, but typically are along the following lines:

  • Institutional investors probably don’t want to meet with us since we are such a small percentage of their investment portfolio.
  • We don’t even have time to prepare for an elaborate roadshow, much less jet all over the place meeting with investors to discuss governance.
  • Our investor relations personnel don’t have much experience with this kind of thing. There is a steep learning curve.
  • I hear that investors now want directors to participate in roadshows (see this Doug’s Note). Our directors aren’t interested in that.
  • Our governance structure and compensation arrangements are fairly straightforward. There’s really not much to talk about.
  • We got 97% approval on last year’s say on pay vote. What’s the point?
  • Our large investors are very supportive. And if they have questions, they call us.

To some extent, these are all valid observations for many mid-cap companies. There certainly is no need to rush out and implement a schedule of frequent and elaborate roadshows in every case. However, there is no denying that governance roadshows have become mainstream, even at the mid-cap level. As a result, most institutional investors (even the large ones) encourage governance meetings with mid-cap companies, though those meetings may be less frequent and shorter than with large-caps. And even though things may be going smoothly at your company at the moment, there is no guarantee that they won’t change, and change quickly.

Roadshows are an effective way to hear about issues before they become problems. They also give investors a sense of well-being about management’s diligence and attention to governance details. Initiating governance-related meetings now can laying a valuable foundation for addressing future issues when that time comes.

Mid-cap companies not yet ready to commit to regular governance roadshows can achieve some of the same results by paying more attention to communication tools already in place:

  • Spiff up your proxy statement to provide more descriptive and helpful disclosure, rather than sticking slavishly to the minimum requirements of the proxy rules. Use an executive summary, letter from the board of directors, charts and graphs and other techniques to better convey the company’s governance policies and commitment.
  • Enhance your web site to make governance information more accessible and comprehensive. Go beyond merely including the bare bones charters and governance guidelines under an obscure “Investor Relations” tab.
  • When investors call to touch base about your governance practices and philosophies, call them back. Nobody likes to be ignored.