BulletProofBlog the blog on crisis communications

Each week, Bulletproof Blog features exclusive interviews with thought leaders on issues of critical importance to companies and countries. This week - fresh on the heels of the NACD Directorship Global Forum and with high-profile proxy and bankruptcy battles making headlines - we interview Francis Byrd of The Altman Group, the fastest growing proxy firm in the United States.

Mr. Byrd is Managing Director and Co-Leader for the Corporate Governance Advisory Practice. In this capacity, he provides strategic advice on corporate governance issues to boards of directors and senior executive managers of publicly traded companies. A nationally recognized expert on shareholder, creditor, and bondholder communications, he shared his insights with Bulletproof:
 
What are the most important messages that corporations need to send to their shareholders - both in deed and word - in this time of economic uncertainty?

Francis Byrd: There are a couple of measures companies can undertake to advance a strong message to investors. First, the words: To the extent allowed by disclosure rules, fess up to performance problems and the reasons for them. Explain the new strategy and risks involved; provide a timeline for improved performance; and discuss how execution of the new strategy - either successful or unsuccessful - will directly impact executive compensation.

Next, the deeds: The board needs to reappraise the company' s risk appetite and compensation models. The board should reassess whether its committee structure allows for all the company' s risk to be accounted for. [For example], is the audit committee the only repository for risk?

Most important, directors need to press the CEO and senior management when information seems unclear or opaque.

Finally, companies need to remember to speak with their investors - and not just the top shareholders, but the influential voices as well, perhaps utilizing the Pfizer open dialogue model. Involve your board committee chairs and lead director (or non-executive chair) in order to provide your investors with a sense of hands-on director oversight and management attentiveness to shareholder value.

For companies teetering on the edge of bankruptcy, what communicative steps can they take to reassure troubled bondholders or creditors?

Francis Byrd: I' d recommend repeating the process I outlined in my response to your first question, with one exception: There is a need for tighter control of the message to limit problems with creditors, bondholders, shareholders, and other stakeholders. That likely means no Pfizer-type meeting, even though it is not unreasonable to expect that you and your banks will be speaking with bondholders and other senior creditors.

What' s most important in bankruptcy situations is that the company has its finger on the pulse of all its stakeholders. The creation of a high-level team of management, communications, and legal staff, who have access to the board and who are authorized to speak with constituent audiences, is essential to managing the communications process.

Are there hot button issues in corporate governance that may not be on boards' radar screens just yet, but that could potentially create future reputational issues?

Francis Byrd: Yes, one issue not widely discussed at the board level is the prospective loss of the broker discretionary vote in the election of directors. The Securities and Exchange Commission is seeking adoption of a change to NYSE Rule 452, which may be approved in time for the 2010 proxy season. Companies - and especially small or midsized firms with a large base of retail stockholders - could struggle to identify and capture votes from retail investors and end up with a greater dependence on hedge funds and institutional investors.

The reputational risk for directors stems from being elected with a small percentage of the votes cast or, in the case of companies with a majority vote provision, not being elected at all.

Moving forward, it' s likely that annual meetings are going to look a lot more like Judgment Day than Election Day.

Larry Smith is Senior Vice President of Levick Strategic Communications and a contributing author to Bulletproof Blog.