Should IR have a say on say on pay?

Investor relations/shareholder engagement. Synonyms? Don’t assume.

The, ahem, dialogue got started last summer when Gary Lutin invited Shareholder Forum participants to comment on a draft report about communications between boards and shareholders (the report is here or here with a version of it here. The early Shareholder Forum version is here).

The authors, Stephen Davis and Deloitte’s Steve Alogna, under the aegis of the Yale School of Management Millstein Center for Corporate Governance and Performance, wrote that say on pay had reignited the governance dialogue between boards and shareholders but the communications process was in disrepair.

The initial comments included finance professor Leonard Rosenthal complaining the draft paper showed ‘a lack of familiarity with the practices of investor relations (IR) professionals.’ He said the report needed to ‘seriously discuss the role of investor relations professionals in board-shareholder communications, and in particular on the issue of executive compensation. Indeed, addressing how this role can enhance this communications process would greatly add to the discussion of the topic.’

Last week there appeared a column by Davis and Jon Lukomnik in Compliance Week (available to Shareholder Forum participants here). Writing more broadly about say on pay, they said corporate secretaries may be best at handling communications with proxy decision makers because IROs are better versed in the quarter-to-quarter concerns of equity analysts.

Professor Rosenthal took note. Commenting on the Shareholder Forum, he complained once again that IROs were being shouldered aside. Companies already have professionals expert at communicating with investors and who are familiar with all the attendant disclosure issues. Why create a new kind of profession to talk about governance when IROs can do it?

Yesterday Lukomnik fired back with his ‘response to the response’. He and Davis didn’t say IR had no place talking about say on pay, he wrote. A company could make its corporate secretary responsible for communicating around governance issues – or it could ‘restructure’ the IR department to handle the job. The main message is ‘don’t assume’: don’t assume the IR team can do it and, presumably, don’t assume the corporate secretary can do it. Just make sure someone’s doing it.

Gary Lutin is inviting comments on this discussion in our Say on Pay 2009 clearinghouse.

– Neil Stewart

Comments

[Sarah Wilson]

Speaking from an end user perspective, it is sad to note that the IR function and company secretary invariably do not work together, which is a great shame as each has much to contribute.

Investors are expecting to see a connect between pay and performance, it is perhaps not unreasonable to see a connect between the two departments who each are talking to investors, but possibly not from the same hymn sheet.

Yes, investors get flack too for not having a joined up approach to governance and investment. But watch this space, the next 10 years of investing will not be the same as the last 10 years

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