Commissioner Luis A. Auiglar from the SEC recently released an article regarding the importance of corporate disclosure at annual shareholder meetings, and the connection between transparency and happy investors.
Many companies view the task of compiling stock plans, policy matters, charter amendments and compensation reviews as just that - a task. Auiglar recommends taking a different, more respectable approach by viewing this meeting as an opportunity to “engage and inform shareholders.”
Auiglar highlights the key content shareholders should focus their attention on, so they can best cast their vote in the companies where they choose to invest.
1. Review Executive Compensation: Do they deserve what they are earning? Is the company doing well? Show the board has control and is in tune with what is going on, and in turn, send the message to all employees that hard work equals compensation.
Vibato Note: Remember, the shareholders determine the BOD, who then determines the management team, who then determines the employees. These people have a direct impact on your investment so the ripple effect of your involvement at the BOD meeting could be profound.
2. Evaluate Leadership and Risks: Don’t just look at what the leadership structure is and accept it at face value. Be prepared to ask WHY the structure is the way it is and then evaluate its efficiency from there. Also focus on what the risks of the company are. Ask if there is a limit to these risks and assess if the current BOD has the experience to deal with these risks.
3. Aim for a Diverse Board: It has been observed that more diverse boards perform better and benefit the shareholders more. This could be attributed to a wide range of perspectives, backgrounds, skills, and experience. Review how they nominate new board members, and how effective this policy is. Does the report show the gender and racial background of the directors? If not, then why?
4. Political Spending: Although your company may not be required to give full disclosure of their spending on politics, do they? Will they? Do you like what you see?
In the end, companies that have a high quality of corporate governance are easier to support and invest in, which increases their value. Auiglar breaks it down, “Studies have shown a statistically significant relationship between governance quality and cost of capital, in which the market rewards companies perceived to have better governance practices”. Companies who are aware of this typically provide detailed proxy reports to help shareholders stay educated on the businesses they are investing in. Are you educated in your investments? Do you feel the disclosure could be better?