As part of my journey to learn more about Transparency, I dug into Laurent Rouyrès’ fascinating book entitled “Information Wants to be Free: From Moral Transparency to the Transparency of Publicly Listed Companies.” Laurent is the founder of Labrador and a fascinating man. As he describes at the start of the book, his career started as a professional rugby player.
Laurent’s first chapter delves into the erosion of trust in society and the need to build that back up. In the next chapter – called “Fiat Lux” (French for “Let there be light”), Laurent pens:
If there is a “principal” / “agent” couple for which transparency is fundamental, it is the one formed by the shareholder, who invests, and the executive, in whom the shareholder entrusts the mandate to manage.
Shareholders cannot expect the executive to show the same “exact and careful vigilance” of their interests as they would. This is why shareholders appreciate being able to easily read about the company in which they have invested.
The more transparent a company’s governance, the more it creates the conditions for investor confidence. Conversely, opaque governance is not likely to stimulate a desire to invest.
Laurent’s use of used cars as an analogy for why the market needs transparency made a lot of sense to me: “By definition, sellers know more than buyers about the quality of the cars they offer. In the absence of clear quality signals, which would enable buyers to differentiate between offers, this information asymmetry weighs on their confidence in sellers; it therefore also weighs on the price they are willing to pay in the market.
This downward pressure on prices tends to drive out the “good” sellers: those who have a quality offering. So that in the long term, all that remains on the market are lemons: old wrecks, sold at a price low enough to convince suspicious buyers. And this is how a market self-destructs.”
When I first began to learn more about corporate governance when I became the editor for the “Corporate Governance Advisor” about 25 years ago – so this was before Sarbanes-Oxley, which made “corporate governance” a household term almost overnight – I didn’t understand why companies essentially hid their governance practices and treated shareholders like adversaries when it came to voting. Back then, only a handful of companies made their corporate governance guidelines public, meaning that only a handful of companies even had these guidelines.
And it’s really only in the past decade that shareholder engagement has become a regular practice. I believe that even today most companies view engagement as an obligation and not an opportunity. Senior management often doesn’t devote sufficient resources to engagement and treats it differently than the investor relations function when logically it seems they should be treated the same.
Anyway, if you’re interested in some practice tips for how to put your best foot forward when engaging shareholders, check out the “Shareholder Engagement Guide” that I wrote a while back, posted on PublicChatter.com. Here’s what it covers:
- How to Ensure Those on Your Engagement Team Will Stay the Course
- Most Important Word in Persuasion?
- Practice Your Smile
- How to Handle Unexpected Questions (This is the “Biggie”)
- What Should You Say to Investors When There’s Nothing Pressing
- How to Land a Meeting with an Investor Who Doesn’t Want to Meet
- 7 Tips for the Best Engagement Appearance You Can Pull Off
- One Thing NEVER to Do When Engaging with ISS
- A Few Things NEVER to Do When Engaging with Institutional Investors
