Reaching Out To Directors

REACHING OUT TO DIRECTORS WITH SOME GOOD DIRECTOR EDUCATION PROGRAMS:

Those gosh-darned university off-sites aimed at Directors seem to be proliferating like flies on a warm mincemeat pie – although lately, a bit of much needed consolidation seems to be afoot.

The last thing YOU want to do is to enroll a Director in a program where they are the only Director who’s not on the panel – or one where lawyers and other wannabe vendors outnumber them ten to one.

Worst of all is when directors find the same tired old crowd of “usual suspects” – the same self-anointed governance “gurus” and who bored them to tears last year. There are some very good programs out there, of course. So do your homework. And be
sure to network extensively with your colleagues. And please note that the Director-Ed programs that get the highest grades from Directors are those that have been custom-designed – specifically for them if they’re new… or for the Board as a whole if there is something really new on the governance scene, or if a brief review and catch-up session may seem warranted

Most corporate citizens would agree that corporate directors are among their most important and most demanding constituencies. But ironically, we think that Directors are among the most under-served constituencies of all – at least where “reaching out” is concerned. Here are a few things that are normally sure to please Directors…plus some hints on prepping for and reaching out in a crisis:

REACHING OUT TO DIRECTORS WITH A WELL-DESIGNED AND WELL-DELIVERED BOARD SURVEY:

Some helpful comments from Stuart Levine, Chairman/CEO of Stuart Levine & Associates:

Recent research indicates that annual board performance evaluations have become the norm.

In fact, the NYSE Corporate Governance Standards require that the Boards of listed companies and their man- dated Board committees (Audit, Governance and Compensation) undertake

annual performance self-evaluations (with the Governance Commit- tee overseeing the evaluation of the Board). Investors expect boards to conduct them and professional directors understand the value they provide.

But time constraints – and a variety of “logistical considerations” often stand in the way of delivering the best possible product. Surprisingly, only 21% of all companies that conduct such evaluations review performance at every level – the full board, committees and individual directors. Only 17% use a third party to conduct these evaluations, although in my experience, retain- ing a trusted and experienced firm to conduct these assessments provides an invaluable opportunity to strengthen the culture of the board.

In response, our firm has developed a proprietary web-based board evaluation tool. It is easy to use and customize. It greatly reduces the amount of time directors need to spend on filling out forms. It provides prompt results and absolute confidentiality.

Collecting the data independently and using a trusted third-party to deliver it allows the board to dedicate its time to reviewing the data together, which begins an important collaborative process around improving board culture.

Mr. Levine is a Director of Broadridge Financial Solutions, Inc. (BR), and a member of the Advisory Council on the New York Stock Exchange that focuses on boardroom guidelines for the new director.

For more information, visit www.stuartlevine.com.

_{REACHING OUT TO AFFINITY GROUP INVESTORS:}

The biggest money-saving tip – and also the biggest money-making tip that your editor has published over the past 16 years is to turn your company’s natural “affinity groups” into new, and/or bigger and better investors.

Every company in the world has natural affinity groups; customers, suppliers, employees – doctors and dentists if you make products they are interested in – hobbyists, and just plain fans.

By definition, they will be your company’s best friends through thick and thin. They will vote faithfully – and always with you – unless of course, someone fouls up unconscionably. This will let your management sleep better at night, and save you tons of money on proxy solicitation efforts. And best of all, in terms of money-making – if you have a well-designed Direct Stock Purchase program; one that will let you switch on and off to an “original issuance mode” as needed, they will be a literal fountain of money, that will typically provide all of your short-term funding… essentially for free. If this is of interest to you – or if you are simply tired of watching your stock price languish for lack of a following – or worse, being “whipsawed” by arbs, speculators and rumormongers, go to www.optimizeronline.com and read the three “Articles of Interest” entitled “Our Top Ten Reasons to Grow and Guard your Individual Investor Base,” “DRPs and DSPPs – Powerful Tools to Optimize your Investor Mix” and “Shareholders as Customers – Show Me The Money!”

REACHING OUT TO DIRECTORS IN A CRISIS… AND BEYOND:

 Carol Zepke, EVP & Corporate Secretary, Pacific Capital Bancorp, Santa Barbara, CA – who was surely the busiest Corporate Secretary in America in 2009 and 2010 – shares some experiences…and tips…

“In the Fall of 2008 – after the housing bubble burst in California, the banking industry spiraled downward and the capital markets dried up – my bank was among the first to participate in the Troubled Asset Relief Program/Capital Purchase Program (TARP).

In 2009, the board created two new oversight committees and by yearend, I had drafted and distributed over 90 sets of minutes for the board and its committees. Through the third quarter 2010, I counted another 75 board and committee meetings. Since the Ford Financial Fund acquired a majority interest in the bank on August 31, meetings have slowed down a bit, but the board and certain committees are still required to meet monthly.

I became a huge fan of DirectorsDesk, the secure NASDAQ Board portal. I was very impressed with DD pre-TARP and, given the importance of selecting the right supplier to our Board, I also weighed the options and figured that NASDAQ would be around for quite some time.

Literally, I could not have coped during the last two years without Directors-Desk. During 2009 and 2010, I utilized DD to post committee and board materials, confidential documents about potential merger partners, and numerous loans and unanimous consent resolutions for approval by a vote. Certain directors were not comfortable using DD initially, but after a quick telephone “coaching” session, they got with the program and started viewing the material online through DD – and casting votes. As one director said, “Crisis mode and necessity made me view the material on DD.”

Material is posted for all meetings now, including management committees. I would like to say that we are “paperless” but in reality, our directors still prefer a hard copy of the material when they arrive for a board meeting. In time, I hope to wean them over to an I-pad that they can bring to the meeting to view their DD material.

I know the theme this year is “reaching out to investors,” but our investors have been reaching out to me and the assistant secretary with endless questions about what is going on with the bank now. We have filed over 30 documents with the SEC since May, conducted a rights offering and are now doing a reverse stock split to avoid delisting and to attract long-term investors (will be trading post split on 12/29) and reincorporating in Delaware (12/30). As you can imagine, I’m looking forward to a year-end vacation!

(Editor’s note: Currently, Carol is also the Secretary to the Society of Corporate Secretaries and Governance Professionals; Proof positive of the old saying that “when you really need to get a job done, give it to a busy person.”)

REACHING OUT TO EMPLOYEE INVESTORS:

Some practical tips on reaching out – and on getting employees to respond – from Ellen Philip, of Ellen Philip Associates:

“Employee investors should be among a company’s best friends and most steadfast and reliable voting blocs – and the easiest of all votes to garner. It’s not at all unusual for employees to hold 6% or even 10% or more of the total voting power. But many times, rounding up their votes is not seen as terribly important… until a crisis arises. Here are a few tips: First and foremost, get your employee owners to form a habit of voting. Let them known their vote is important. Email reminders to them. Technology should truly be your friend here – as well as a huge costsaver. Make sure that yours is easy to use. Provide multiple technologies, to accommodate employee preferences, such as phone, web-based, and yes, paper voting. If you have multiple employee plans, be sure that you give them an employeefriendly “one-stop polling place.” Consider a personal message from the Chairman…whether in print, via email or in an easily emailed video clip. Another very important thing to know: guaranteeing to employees that their votes will be entirely confidential will definitely increase employee voting.”

REACHING OUT to FOUNDING FAMILIES and OTHER VERY LONG-TERM INVESTORS:

Here’s another investor category where, ironically, some Very Important People are often taken for granted and not reached out to at all…until trouble arises… So we reached out to Artie Regan, President of Regan Associates – who we call “The King of the Community Proxy Fight” for some advice:

“A huge number of the proxy fights I’ve been involved in over the years have arisen among founding families and other of the original investors. This should not be a big surprise if you think about it: By the third generation, there’s a whole new cast of characters, and often they have conflicting ideas about what should be done with the “family business” – or they simply have new investment objectives or financial needs of their own. The biggest and baddest fight I was involved in was between a father – who was sort of ‘losing it’ but who held a ton of stock – and his son, whom the board ended up supporting after a lot of handwringing. Another very common thing that generates proxy fights is when a father passes the business along to a son – who some investors feel is not up to the job.

The most common “trigger” by far is the ex-CEO who tries to come back if the business suffers a bad year or two, and who can often win a lot of community support. Recently, we were engaged in a literal war – between a very prominent “mentee” – the CEO of a regional bank – and his original mentor, the CEO of another, larger regional bank; one that was set to become much smaller if the merger of the mentee’s bank with a third bank went through.

Another very important thing to know about proxy fights – especially when the company has a strong local presence, and where there are a lot of longterm owners – is that, typically, the voting comes down to an essentially 50-50 split: Half the ownership wants a merger to go through, so they can cash in, while the other half is concerned about job losses and loss of support for local
charities and local events within the community – and often, is not too keen on taking a big capital gains hit either.

So what should smart companies be doing if they have a strong base of founding-family members, long-term employees and retirees and other local owners in terms of ‘reaching out’? My number-one suggestion is to be sure you do reach out…and not at the last moment, after the storm clouds have gathered. Be proactive: Be sure to extend a special welcome to long-termers at your annual meeting, of course. And make it a ‘special event.’ But more important if you have a large base of older and/or local investors – and it’s something that can be done for just a few hundred dollars at the local civic center or VFW hall – host an interim shareholder meeting, midway through the year, so there are no surprises. I can’t tell you how many fights I’ve been involved in that started when a bad year or a dividend cut took investors totally by surprise. Another thing; founding-family stock often ends up in some “interesting” and not always friendly places, so keep an eye on that too. Most important of all, remember that reaching out successfully to long-term individual investors is a totally different thing than communicating with Wall Street types.”

REACHING OUT WHEN A DEAL IS ABOUT TO GO DOWN

…some tips from Bruce Goldfarb, President & Chief Executive Officer of Okapi Partners LLC:

“We have seen a steady upsurge in deal-scoping and deal-making activities this year, especially in situations involving private equity sponsors, which we expect to continue into 2011. With almost $2 trillion in cash on hand at U.S. companies alone, we also expect 2011 to be an extremely active year for deals that will involve strategic buyers. (The cash balances may also make some companies potential targets for proxy fights, if recent past history is an indicator of future behavior. That evaluation process
is well underway for a number of investors right now.)

The most important thing to think about in terms of reaching out to investors when a deal is set to go down is to target your announcement – and your message – to your specific investor audience – and to do so in the most well-planned, precise and thoughtful way from the very outset. Many investors have already thought about their target price and will be poised to make a very quick decision about any deals that are announced. That is one reason why deal announcement creates huge trading volume and it’s especially important to note that as soon as a deal of any kind is announced, your investor base will change dramatically. You need to keep this turnover in mind when crafting, targeting and delivering your message.

In an era where there is a lot of skepticism about anything a public company does and says, there is always the potential for some investors to put their mouth where their money is and sound off pretty quickly if they are not happy with the way a deal is structured – and maybe to counter with a bid or fight of their own if the message is not crafted and delivered in a very compelling way – or simply to serve as the spark that will cause another investor to jump in.

REACHING OUT TO CUSTOMERS, SUPPLIERS, EMPLOYEES AND OTHER INTERESTED PARTIES VIA A “VIRTUAL SHAREHOLDER MEETING”:

Regular readers of the Optimizer know that we are big fans of Virtual Shareholder Meetings – partly because, when done right, a V-M will allow a company to “optimize” its spending on something they have to spend time and money on anyway – but largely because, when done right, a V-M will add importance to something that IS important…and open the meeting to thousands of people who could never attend in person. So we made haste to contact Lisa Beth Lentini, Senior Corporate Counsel at Best Buy Co., Inc., whose Virtual Shareholder Meeting drew a lot of attention in 2010:

“Our Virtual Shareholder meeting landed a great brand message for us. We were able to show off ‘the art of the possible’…in today’s ‘connected world’. We know we were able to reach a lot of people who could never attend an in-person meeting – including older and home-bound people. But we also wanted to attract the younger generation who, as we know, have been walking away from traditional meetings, and from voting proxies in droves. And it does seem that many of the younger generation – who are the most attuned to the ‘connected world’ – have little patience with, and are never going to visit the ‘old media world’ very often. We especially wanted to reach out to customers – to show them the art of the possible – and to our 180,000 employees, who do not have regular access to or interaction with our senior management or our directors – and to socially conscious investors – and to analysts too – many of whom do not fully understand or fully appreciate the ‘connected world’ to the extent we’d like them to.

We were very happy with the results: We were one of the first companies to have a director attend the meeting virtually. We were thrilled with the live streaming over the web. We tried to keep to fairly easy things to do, technologically – and there were no glitches at all. We had two and a half times as many people on the web as we had in the room, which was really great. And over 600,000 shares were voted on line – which is a very gratifying number. Did we get any push-back from people whose own technology wasn’t up to snuff? Actually, we’ve had none…but if anyone had trouble, we sure know a store where they can get help. A large number of companies have tuned in to have a look, we hear…and of course the meeting is still up there on our site. We tried hard to make it more engaging – and somewhat entertaining – and something of an ‘event’ – and we think it went well. We got lots of good press. Our Board and the senior management team were very happy. I think we achieved a different and a very well-branded story. And, most important to us, the meeting was brand-related – and fit beautifully with our strategic ideas.”

REACHING OUT to VERY SMALL INVESTORS

…some timely information and advice from Chairman Barbara Vogelstein (left) and President Barbara Wynne, of Share Gift USA:

“With corporate cash-on-hand at a 50-year record, we expect to see a lot of mergers and acquisitions in 2011.

We hope that whenever new securities are issued, companies will consider the many small holdings that M&A transactions typically generate, and think of ShareGift USA as a way of helping smaller and/or disinterested new shareholders to conveniently cash out.

Many companies that we talk to understand that a small-shareholder clean-up program will save them money – and know they are a bit behind times in terms of dealing with it. We think that many companies will find time to address this in 2011.

We believe that keeping these programs as simple as possible will produce the best results – offer just three simple choices: “Sell, Donate or Do Nothing.”

We at ShareGift USA are ready to work with you and any of the service providers you choose to make your cleanup programs a big success. In our experience, the ‘donate option’ is a very attractive one to offer.

For more information, please contact Barbara Vogelstein or Barbara Wynne at 212-813-9677 or info@sharegiftusa.org.”

REACHING OUT TO REGISTERED HOLDERS:

Some practical tips, and, as always, a few interesting innovations from Peggy Foran, the Chief Governance Officer & Secretary at Prudential Financial:

“Engaging, and communicating effectively with all of our investors is a very high priority task at Prudential. Because we are a de-mutualized insurance company, we have a very large population of registered shareholders – a group that most large companies find very hard to engage these days. For many such investors, the inner workings of a company are something of a mystery, similar to a “black box.”

This year, we had several important goals in mind: giving individual investors a better and more understandable look into our governance processes, making sure they know that they have a voice in governance matters – and various ways to be heard – and motivating more of them to cast their votes.

We went to great lengths this year to ensure our proxy materials were written in plain language. We completely revamped the formatting, layout and design of the proxy statement and proxy cards. The board and senior management also wanted to give shareholders the best possible sense of our strategy, and a sense that we are doing the right things – and to provide a better look at what exactly the board had done on their behalf. So the governance committee proposed a “State of the Union” letter in the proxy statement, describing the work the board had done over the previous year on compensation and governance issues and emphasizing the Board’s role as steward of the company. The letter is in plain language and was signed by each of the directors. As far as I know, we are the only company to have done this, although I’ve gotten quite a few phone calls from other companies saying that their board is considering doing something similar next year.

It is also important to us that shareholders feel they have a voice, and that the company is listening. So in addition to a revamped executive compensation website and an Independent Directors’ email portal, we proactively solicited feedback from registered shareholders on the 2010 proxy card and Internet Voting website. With over 2,600 shareholder comments received, the Board gained valuable insight regarding the issues of most importance to our registered shareholders.

Last but far from least, recognizing our voting participation challenges, we implemented a novel incentive program to encourage voting. Registered holders who voted in 2010 had the option of receiving an eco-friendly Prudential tote bag or of having a tree planted in their honor by American Forests. The voting incentive program achieved its goal, helping the company record an increase of 23 percent in registered shares voted compared to 2009. In addition, 68,000 shareholders who did not participate in 2009 voted in Prudential’s 2010 proxy process. Nearly 120,000 shareholders opted for the eco-friendly Prudential tote bag, while more than 112,000 chose to have a tree planted. We should note that while we are being creative and innovative in our efforts to engage our shareholders, this program is less costly to the Company than other, more traditional, proxy solicitation methods. Many shareholders commented that our incentive program was the impetus for them voting in 2010. To quote one shareholder, “The “free” tote bag worked as the incentive I needed to vote this time – thanks!”