Bringing Directors and Stockowners Together

Corporate governance theory states that the directors of corporations represent the interests of stockowners.  But in practice directors are prevented from hearing from individual stockowners and their views on corporate matters.  Conscientious fulfillment of corporate duties is obviously impaired.

Longstanding corporate policies intentionally erect barriers for avenues of direct communication from stockowners to directors.  It’s not easy to contact a corporation’s directors through the corporate offices; they are almost never on the premises, their direct contact information is almost never made available by the corporation, and that information is usually not otherwise public.  Individual directors undoubtedly have direct business mailing addresses, telephone numbers, faxes, and e-mail addresses.  Directors have no legitimate excuse for not being available for input from the persons they are supposed to represent.  Those tens of thousands of dollars in directors’ fees should buy some reasonable access for stockowners.

Generally this lack of access is an unwritten rule of corporate practice.  However, Edison International was more explicit on page 14 of the proxy statement for its 2007 meeting:

Q: How may I communicate with the Boards?

A: Shareholders and other interested parties may communicate their concerns, including concerns related to accounting, internal auditing controls, auditing, ethics, fraud, or legal or regulatory compliance matters to any individual Director, including the Lead Director, the Directors as a group, the Audit Committees or any other group of Directors.  Such parties may do so by calling the Companies’ independent helpline at 800-877-7089, the toll-free number posted on the Companies’ website, and asking the helpline provider to transmit the communication to the applicable Directors, or by sending the communication in writing addressed to the applicable Directors, in care of the Corporate Secretary at the principal executive office of the Companies.  If the communication is delivered via the helpline, it will be forwarded to the Chair of the Audit Committee, who will determine the method of communication to the applicable Directors.  If the communication is delivered care of the Corporate Secretary, the Corporate Secretary will review it and will forward complaints and concerns about accounting, internal accounting controls, auditing, ethics, fraud, or legal or regulatory compliance matters to the Chair of the Audit Committees.  The Corporate Secretary will forward any other communication that, in the opinion of the Corporate Secretary, deals with the functions of the Boards of Directors or group of Directors to whom it is addressed.  The Corporate Secretary will not, however, forward communications unrelated to the functions of the Boards of Directors such as individual customer complaints, mass mailings, new product or service suggestions, resumes and other forms of job inquiries, business solicitations, advertisements or surveys.

The message is plain: Corporate officers stand between the directors and their constituent stockholders.  Direct communication is not encouraged–or, in most cases, permitted–with individual directors.  No direct address, phone number, fax number, or e-mail address of any individual director is provided.  All phone messages are intercepted by a “helpline” executive and supposedly go to the Chair of the Auditing Committee rather than the individual director to whom they are addressed; and all mail to directors is intercepted by the Corporate Secretary, who retains discretion to determine whether to forward the message to the directors or to discard it completely.

Opening the lines of communication between stockowners and directors can only have a salutary effect on corporate governance.  In order to get the ball rolling, this could be a good subject for stockowner proposals, which could provide that such information be made available in the company’s proxy statement or on the corporate website.  Such a proposal would be a sound strategy for shareholder activists.  It would also be a good test of board attitudes; any opposition by boards of directors to this type of proposal would likely generate significant media scrutiny.  We can find out just how committed to direct corporate governance incumbent directors are–and how willing they are to translate corporate governance theory into action.