Improving Investor Relations: Board Engagement

Nicholas J Price
6 min read
A lot of things fall under the topic of communication, and board engagement is one of them, but engagement means more than just sharing information. Board engagement between corporate leaders and investors carries great weight because it helps the board to find a strategic direction and to fully understand the risks the company must take to make progress. Strategic planning and decision-making are more ambiguous than ever before, and yet they need to occur faster than ever before because of the rapidly changing environment that's happening in the corporate world.

Improving investor relations refers to giving investors the information they need and desire. That can only happen when the board and management work in sync to produce it. It's crucial for boards and managers to engage with each other without falling prey to the board micromanaging the executives. Also, boards need to engage with management without losing the necessary objectivity that's required for proper oversight. The first step in making change is for the board to have a candid talk with management to clarify their respective roles and responsibilities.

Improving Investor Relations Begins with the Board's and Management's Engagement Practices

To improve investor relations begins with the relationship between the board's and management's relationship with each other. This requires an open, trusting relationship between the board leader and the CEO that's based on mutual respect. The health of their relationship will ultimately be a reflection of the health of the overall leadership. To begin with, both parties need to reach an agreement on what they can do separately and together to be proactive to deepen their board engagement practices.

Research by Heidrick & Struggles on the study of 'super-accelerators' gives us an indication of how improved engagement between the board and management leads to strong financial performance. In a survey by representatives of large, global companies with a demonstrated history of outperforming their competitors, Heidrick & Struggles found that the relationship between an independent board chair or lead director and the CEO was the most important of five key characteristics of top performers.

The National Association of Corporate Directors (NACD) encourages boards and management teams to have a relationship with each other that reflects the sentiment of 'trust but verify.' What they mean by that is that board directors need to trust their management teams while being willing and able to drill down deep with tough questions. Keep probing when answers are weak, unclear or insufficient. It's vital that boards not make inferences and assumptions because of the rapid pace of changing risks.

Related to the management side of the relationship, the CEO needs to be ready to listen and truly consider the board's input. That includes having a willingness to share candid feedback about where the board's contribution may be falling short of their expectations. The result of this acknowledgment should motivate senior executives to learn to draw on the board's full potential, without crossing over the line into management responsibilities.

A Breakdown on the 'Trust but Verify' Form of Engagement

To further expand on the motto of 'trust but verify,' boards need to be clear on where they want to see deeper involvement with the board and be sure that executives understand why improved engagement between them creates better governance.

NACD makes several other recommendations in their white paper 'Fit for the Future' about investor relations and board engagement. They recommend that boards and management teams collaborate around a shared vision for the present and future about where the industry and the competition are going and how they should best strategize around that. Their new focus should be geared toward innovation and change.

Board oversight should cover an assessment of how well executives are managing to cover such critical elements as strategy, risk management, internal controls, incentives, culture and talent. Both parties need to work together to establish a framework for more frequent, focused management communication in between formal board meetings.

The rapid changes that occur in the marketplace demand timely engagement. Having objective information in real time is a critical ingredient that helps corporate leaders to be transparent. Quarterly reports are necessary, but there still needs to be continuous communication between the board and management.

Part of the board leader's responsibility is to make sure that a trusting relationship is coherent enough to engage with tough questions while keeping respect intact. The CEO plays an equal role in helping to foster an environment in which there can be candor and real-time transparency. Executives can improve board engagement by offering more frequent management updates on key changes in the business world and how those results impact the company's strategy. They also need to provide insights into the company's performance against benchmarks.

All of these indicators speak to the board's need for more meaningful information and to get that information in a timely fashion to advise them on strategic decisions and help them improve oversight.

Improving Investor Relations Requires Improving the Quality of Information

Research performed by the NACD between 2018 and 2019 suggests that board directors spend almost twice as much time reviewing materials given to them by management as they allocate to reviewing relevant information from external sources. The amount of time they spend digesting materials from management demonstrates that the board has a heavy reliance on management's views and analyses. Boards expect more than just routine reports. NACD says that around 53% of boards indicate that the quality of board reports could be much better.

The NACD commissioners agree that improving investor relations will require regularly reassessing the reporting approach with executives. There is no consistency of opinions on exactly how that should happen. One commissioner suggests that boards and managers do a systematic appraisal of their process at least every three years. Another commissioner favored a review and possible revamping of dashboards and flash reports, along with an assessment of what constitutes the right indicators.

A couple of things that boards can do is to provide written guidelines on the desired length, format and content for the information the board wants. It's also vital to keep the channels of communication open and streaming both ways. Once the board and executives agree on the type and frequency of reporting, it's important to include regular updates from the CEO via monthly phone calls and ad hoc communication on material issues in real time.

Trusting board relationships also require having faith in your board portal software system. About half of the Fortune 1000 companies chose Diligent Boards as their primary governance software platform. The system provides a secure platform where boards and management teams can easily manage agendas, have discussions and share reports securely. Since board directors can update reports and other documents in real time, Diligent Boards answers the call for timely information. Diligent Boards integrates seamlessly with other board governance software products for a full-service governance software solution.