Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, September 16, 2010

Board evaluation: what to share publicly?

Yesterday I was asked to the ABI Investment conference, to join a panel on board evaluations. My bit was about communicating the result.

It is an interesting dilemma. At one level the board evaluation is a great opportunity to communicate with long term shareholders (and the conference obviously was largely focussed on them, rather than the range of short term holders). Communicating an understanding of how the board works, and how sustainable growth over a period of time is built.

As always, the distinction is between ‘disclosure’ and communication. Discussing the fact of the evaluation and its mechanics of the evaluation – how it was facilitated etc - is limiting. Process and systems can only get you so far.

However, taking a ‘broadcast’ approach of the meat of the evaluation can be challenging. As one speaker commented, the effectiveness of any review –whether conducted for an individual or a group such as a board – is damaged if the result is to be discussed in public. Especially since the review will want to examine people issues, look at the outcome of decisions taken, the chemistry how the board works, the extent to which the culture allows (encourages) challenge to the established view. Getting board buy in – especially from overseas directors – under these conditions is tough.

These soft issues are really difficult to discuss effectively in public. Which is why one senior institutional investor commented “boards don’t publish anything useful in the annual reports”. Another commented that there was little substitute for the fireside chat, which rather ignores the investors NOT known to the company.

There are things that can be done. Creating a summary of recommendations resulting from the review, and tracking and reporting on them afterwards is effective. Succession planning and discussion of the rationale for appointment of new directors were both discussed.

Nonetheless, these disclosures are still about saying to investors ‘we have done these things: now trust us’.


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