Why corporate boards
should blog
By Dominic Jones, IR Web Report and Pam
Agnew, ABC Related: 10
Excuses NOT to Blog
DESPITE all the changes
that new laws like Sarbanes-Oxley have brought
to how companies are governed and managed, one
thing has still not changed: directors still don't
talk to their shareholders.
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Blogging
technology provides a credible
platform for ongoing board-shareowner
communication.
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Sure, boards and directors may have private
meetings with high powered institutional investors
on issues of corporate governance, but they
almost never communicate in an informal way
with rank and file shareholders and other stakeholders.
The blogging technology platform, when properly
executed, provides boards and legitimate shareholders
with a transparent platform to seriously engage
one another on the issues. It can provide boards
with a low-cost, highly effective means to establish
a credible dialogue and allow directors to obtain
feedback from a wider variety of shareholders
with differing viewpoints.
To be sure, the concept of director bloggers
is a new and dramatically different approach
to board-shareholder communication. However,
this is simply a case of taking an existing,
proven technology and customizing it slightly
for another purpose.
After carefully studying how blogs work and
how the blogging community interacts, we are
convinced that the technology offers a highly
attractive opportunity for forward-thinking
directors and boards. It enables boards to get
their message out, and at the same time provide
a forum for shareholders to offer informal input
to their elected board representatives.
The current model is
broken
In spite of all the upheavals in boardrooms
recently, directors are still as inaccessible
as they've always been. They're largely cut
off from the people they are supposed to represent.
Except for the annual meeting and annual reports,
shareholders rarely hear from directors.
Boards themselves seem to recognize that there
is a problem. This month, the Conference
Board issued a
report on the future of annual meetings.
It says there is frustration that annual meetings
are not effective forums for discussion. "Formal
annual meetings do not lend themselves to serious,
informal discussion," the report says.
The report's key recommendations include using
the Web more in shareholder communications and
annual meetings, and creating "a series
of alternate forums where investors and corporate
management can examine critical, long-term issues."
Similarly, in a joint National Association
of Corporate Directors and Council of
Institutional Investors task force report
in March 2004, both sides agreed that current
practice isn't working.
"Many shareowners have been frustrated
over the years by what they see as a wall between
them and their elected representatives, the
board of directors. They feel that they have
no input into selecting director nominees, no
meaningful choice in their election, and, generally,
no hope of ever hearing from or exchanging views
with them," said the task force's 24-page
report (PDF 138KB)
Ultimately, though, if directors want evidence
that the current model is broken, then the real
test must be shareholder sentiment and awareness.
And that's where the evidence is that boards
and managements still have a long way to go.
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| Last
week, General Motors launched a blog for
vice-chairman Bob Lutz. Most of the discussion
in the early stages has centred on vehicle
design. |
A recent telephone survey of 2,152 workers
and 1,880 investors conducted between November
5 and 14, 2004 by Rasmussen Reports,
an independent public opinion research firm,
found that 80% of U.S. workers and 76% of employed
investors had never heard of the Sarbanes-Oxley
Act.
Among working investors, defined as owning
at least $5,000 in stocks, bonds and mutual
funds, only 7% indicated that Sarbanes-Oxley
had increased their confidence as an investor.
Likewise among this group, only 7% said it had
increased their confidence in the leadership
of public companies.
So, despite companies spending millions of
dollars and hundreds of hours meeting new Sarbanes-Oxley
requirements, there is very little awareness
from the public at large. This can't be helpful
to business, especially if it wants to have
its voice heard on public policy.
Boards must reach out
and communicate their story
Clearly, directors must accept that governance
done behind closed doors is not governance seen
to be done. Companies and boards will not get
credit for the improvements and efforts they've
made unless they tell people about them.
Boards need to be more accessible to shareholders
-- and the Internet, more especially the blogging
approach to Internet communications, is the
best way to achieve this.
A directors' blog would be an inexpensive,
technically simple, but highly honest way for
people to interact and dialogue on the Web under
a set of accepted rules. Blogging sites include
features that can give corporate boards a direct
link to the desktops of people who care about
the company, regardless of how many shares they
own.
Blogging is a more honest and inclusive way
of communicating on the Web because it is difficult
for any one party to dominate the discourse.
Shareholders would be able to comment on Web
postings by directors and other commentators.
They would also be able to post comments on
their own blogs and have these linked from the
board's blog. Anyone with a right to have their
say as a shareholder would have an opportunity
to do so.
A board blog is like an electronic Town Hall,
something recommended by former SEC chair Richard
Breeden in his report on WorldCom
and now being implemented by the renamed MCI.
Except that with a blog, the board has a perpetual
online meeting. It can call together shareholders
at any time to seek input or inform them of
important developments at the board level. It's
a highly effective way for boards to keep shareholders
informed of what they are doing at a negligible
annual cost.
How board blogging would
work
Board blogging is not as radical an idea as
it might sound. Blogging has recently been given
credibility by some high profile companies.
Last week, for instance, General Motors
vice-chairman Bob Lutz launched a
blog which is little more than a sales tool,
but which promises to be more. He follows the
likes of Sun Microsystems' Johnathan
Schwartz. And SAP
AG has one of the best executive blog programs
on the Web. In fact, blogging is less radical
than the discussion forums which forward-thinking
companies like Shell, with its Tell
Shell forum, host on their sites.
Furthermore, blogging technology would help
boards to more easily implement the recommendations
of the joint NACD and CII task force on shareholder
communication. In their report, the two organizations
call for boards to improve shareholder communication
on the Web by posting all "non-trivial"
shareholder questions and the company's answers
on the Web to "help ensure a regular
stream of information of interest to shareholders."
With traditional websites, providing a regular
stream of questions and board answers is burdensome
and time consuming. That may explain why, almost
a year later, none of the more than 500
companies we track, currently meets the
joint task force's best practices.
Managing comments
is easy to administer
Blogging software makes the process of receiving
and responding to questions and issues easy
for boards to control and manage. They can establish
and enforce rules of procedure for questions
and comments on the blog. Boards would have
the option to permit questions to be posted
immediately without prescreening, or to have
them go into a queue to await approval for posting.
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Blogging terms
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Blog:
A website
that includes a commenting system, a subscription
feed, and trackback feature.
Trackback: A technology that lets
one blogger attach a comment on his or her
blog to a post on your blog via a link.
RSS feed: A tool for bloggers to
notify subscribers and blog search and aggregation
tools that their blog has new content. Now
used by CNN, New York Times and IR Web Report.
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By setting up the site so that only shareholders
with a valid identifiable code would be able
to post questions, the system would be more
efficient than the current practice of receiving
questions via an open email address or email
form. There would be fewer misdirected questions
from general traffic to the company's website.
The commenting system would be directly owned
and administered by the board, or an appointed
outside intermediary, to give directors guaranteed
unfiltered access to the questions from shareholders.
Shareholders, in turn, would also gain greater
confidence knowing that the board will hear
them uncensored.
Trackbacks keep communication
honest and transparent
Of course, boards may agonize at the prospect
of having to exercise judgment over what comments
to permit and which to exclude. And some shareholders
would be skeptical of the openness of the debate
if boards were seen to have total control.
However, the blogging medium offers a counterbalance
to the board's control over any debate through
a technology called trackbacking. Trackbacks
allow anyone with a blog, or in this case shareholders
of your company who have a blog, to provide
a link from a post on your site to a related
post on theirs.
For example, if Calpers decides to respond
to something on your board blog, it can write
and post its comment on its own blog, then issue
a trackback ping that would alert shareholders
on the board's blog that Calpers has a related
post on its site.
Trackbacks are an insurance policy for transparency
because even if you delete a trackback from
your blog or refuse to post Calpers' comments
on your site, people who search the Web or follow
other trackbacks are likely to find Calpers'
post anyway.
It seems, though, that boards have little to
worry about when it comes to maintaining an
orderly discourse via a blog. The experience
thus far in the blogosphere, which is much less
controlled than a board blog environment, is
that there is very little unruly behavior.
This is especially so of trackback comments.
It seems that when people or organizations post
responses on their own sites, they tend to be
more careful and considered in what they say
because they are more accountable.
Noted Internet commentator and academic Clay
Shirkey notes in a November
2004 essay that weblogs provide "proof
that you can have broadly open discourse without
suffering from hijacking by (nuisance commentators),
by creating a social structure that encourages
or deflects certain behaviors."
So what would boards
blog about?
Anything they want. The board blog could be
used to give investors updates on the board
and its committees' activities. It could be
used to solicit input from shareholders on issues.
Such input would help directors to make decisions
with the benefit of having some understanding
of where shareholder sentiment rests.
In their joint report on shareholder communications
both directors and investors agreed that some
topics open for discussion would include:
Indeed, the agenda could include all of the
current issues that get discussed with institutional
investors behind closed doors. Only, in the
blog environment all shareholders would be party
to the discussions. They would be able to read
both sides of an argument and come to their
own, more informed conclusions.
This type of open communication forum achieves
precisely the objectives contained in the Conference
Board's report on the future of the annual meeting.
What about Regulation
FD?
The legal risks of board communications are
always an issue, but nothing under current regulations
would prevent boards establishing their own
websites using the blogging platform.
Indeed, because a blog can be viewed by anyone
and comes with an inbuilt syndication system
via a technology called RSS, blogging
would reduce the already minimal risk of boards
releasing material information selectively and
thus falling foul of Regulation FD.
Furthermore, if boards hold fewer private meetings
with shareholders as a result of having a publicly
accessible blog, there'd be even less opportunity
for selective disclosure, since the information
would be available to any shareholder at the
same time as all others. All they'd need to
do is subscribe to the board's RSS feed.
Potential to offset proxy
advisor power and reduce proposals
Blogging technology offers a highly effective
and credible way for boards to open the channels
of communication. By limiting participation
in the blog to only legitimate shareholders,
a blog can provide a more informal way for boards
and shareholders to virtually look each other
in the eye.
Blogging would bring members of corporate boards
closer to their shareholders. It would help
boards to explain their positions on key issues,
and it would give shareholders an opportunity
to communicate directly with the board and other
shareholders in an open, but regulated forum.
Since shareholders would have access to the
arguments and positions of a full spectrum of
stakeholders, they would have more information
on which to make up their own minds. This would
conceivably reduce the influence that
proxy advisory firms like Institutional
Shareholder Services and Glass Lewis currently
have on the proxy voting decisions of institutional
investors as both boards and their shareholders
would have a means to test the waters of where
sentiment on any particular issue lies.
The open communications model of blogging would
lead to serious, open dialogue between directors
and the shareholders they represent. It would
bring credibility back to boards of directors
and ultimately lead to better relations between
directors, management, employees, shareholders
and other stakeholders.
Ultimately, the benefit of board blogs are
the same as any good shareholder communication
program. As the NACD and CII joint report states,
"one of the more tangible benefits of
improved board-shareowner communication may
be that investors' use of shareowner proposals
-- long considered one of the most direct ways
to communicate concerns to and start dialogues
with boards -- may decline in the future as
shareowners become more comfortable, and eventually
satisfied, with alternate methods of communicating
with directors."
Related article: 10
Excuses for Boards Not to Blog
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