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To the letter: How board letters can speak to stakeholders

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typeDeal with the issues before the issues you didn’t deal with become the issue

One of the most contentious issues for stakeholders is executive compensation. Prudential Financial is doing things right according to Laura Rittenhouse and Amanda Gerut. Prudential took on the subject of executive compensation, and changes they made to compensation.

Prudential board lead independent director, James Cullen, sent a letter to shareholders adding to the board’s letter. A simple step forward most companies don’t do.

Cullen talks about how his role fits into the board’s agenda, and how he works as a go-between for board chairman and independent directors.

Truth and its affect on stakeholders

In a world where too many stakeholders see less than best practices used in IPOs, the marketing of hot products and coverage of business generally, truth in investor communications makes investors take notice. Warren Buffett says, speaking on behalf of Berkshire Hathaway:

… as a company with a major communications business, it would be inexcusable for us to apply lesser standards of accuracy, balance and incisiveness when reporting on ourselves than we would expect our news people to apply when reporting on others … The CEO who misleads others in public may eventually mislead himself in private.

Buffett’s philosophy stands out:

  • Go beyond what’s required
  • Report what’s most beneficial to stakeholders
  • Focus on what’s best in the long-term for your organization and  reputation

Truth builds trust. Trust between companies and stakeholders is one of the most important aspects of business communications today. It’s important because of how trust has declined since the financial crisis.

Truth and building trust are the right things to do. A simple Google search on “investors” and “executive compensation” turns up too many companies having faced or facing stakeholder ire. Amidst the new investor activism, Rittenhouse lauds Prudential’s focus on compensation and sees it as much more than just lip service.

Letters to the board are an excellent tool for engaging disenchanted investors.

Leading by being

Allstate went further this year. Its board letter pointed out specific pages in its proxy explaining performance stock awards and CEO compensation.

Compensation and governance: an area where many fear to tread. But companies who deal with these issues don’t only look like thought leaders – they are thought leaders.

In 2011, Allstate’s say-on-pay result was about 57 per cent. Tom Wilson, CEO and chairman, along with company management teams, engaged with institutional investors after the 2011 meeting. The board then included a letter to shareholders in the annual report and proxy package.

Allstate got an enormous vote of confidence: 92 per cent support from investors in the next annual say-on-pay vote.

What I think is ideal is going from reading these letters to seeing how governance translates into performance and strategic execution at the company …

Laura Rittenhouse

Boards overseeing strategy and executive compensation: Greatest value add

Rittenhouse says board letters that engage stakeholders in how the the board is overseeing strategy and executive compensation have the greatest value add. Since investors are often most concerned about these areas, it’s clear they should take prominence, and:

  • Reflect a strategy where truth in communications is important
  • Uphold and enhance organizational reputation through actively listening to what is most important to stakeholders and acting on those issues

Action without listening looks a lot like obfuscation to stakeholders. Listening and then acting strategically reflects serious thought leadership.

Focusing on short-term gain too often leads to long-term pain. You can talk about leadership ad infinitum, but actually leading resonates with stakeholders. Win someone’s trust and you win someone’s heart.

If this sounds too touchy-feely, consider the touch and feel of being perceived as an organization that doesn’t tell the truth. Consider the effect on your brand, performance and reputation.

As Buffett and Rittenhouse point out, deceiving stakeholders is deceiving yourself. Informing stakeholders speaks to your ability to strategize and perform.

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