shareholder-relations-7-13-16.png“You either die the hero or you live long enough to see yourself become the villain.” While it is safe to assume that filmmaker Christopher Nolan did not have a board of directors in mind when he wrote that line about Batman in The Dark Knight, the words are fitting nonetheless. In this day and age, if you sit on a board of directors of a bank long enough, you will eventually be confronted by a shareholder that no longer appreciates how the board is managing the bank. Knowing a confrontation with an activist shareholder will inevitably arise, a board of directors has two options: be proactive or reactive.

Being proactive means taking steps now to engage with all shareholders and prepare to address the concerns of a hard-charging shareholder. Being reactive means ignoring the inevitable in hopes that the board can react quickly under pressure about the board’s stewardship of the bank. Historically, the reactive approach was safe due to the infrequency of shareholder activism in banking. However, in today’s “what have you done for me lately” culture, people believe they are entitled to immediate recognition of their complaints, substantive responsiveness from the board and, ultimately, satisfaction of their demands.

Boards should consider implementing a number of actions to avoid being caught flat-footed. A board can adopt a shareholder engagement policy and/or create a shareholder relations committee. A good shareholder engagement policy will delineate the board’s process regarding shareholder communications and guidance on what is and is not permissible for directors to discuss with shareholders. A shareholder engagement policy typically includes:

  • the purpose of the policy;
  • the responsibilities of the board with regard to shareholder communications;
  • the procedures for interactions between the board and shareholders, including details about how and when such interactions should be conducted, documented and reported to the board;
  • acknowledge the legal and regulatory concerns inherent in engaging with shareholders; and
  • the general topics that are appropriate for the board to address, any limitations on those topics and any topics that the board and management are expressly prevented from discussing.

A detailed shareholder engagement policy also allows the board to set forth a clear shareholder communication strategy prior to confronting an activist shareholder.

A board can also implement a shareholder relations committee. The shareholder relations committee can:

  • review, update and implement a shareholder engagement policy or other procedures governing interactions with shareholders;
  • oversee and document all communications from the board to shareholders;
  • establish avenues or forums for shareholders to communicate with the board and vice versa;
  • appoint a specific individual to supervise and be responsible for speaking directly with shareholders;
  • communicate with management regarding investor relationships; and
  • set the procedures and oversee the purchase of stock by insiders.

The committee would oversee shareholder communications. During difficult stretches, a shareholder relations committee facilitates the board’s understanding of the issues concerning shareholders. This will simplify the process of conveying the bank’s strategy to shareholders. This is particularly important when the board feels it is necessary to calm any shareholder anxieties. During prosperous times, a board can ensure that shareholders fully understand the exemplary results the bank is producing and what it means for the shareholders’ investments.

Should the board have to deal with an activist shareholder, the foundation built and maintained by the committee can prove invaluable. Banking is about relationships. That is just as true for shareholders as it is for customers. If an activist shareholder arrives, the shareholder relations committee can utilize the goodwill generated with the majority of shareholders to gauge where the shareholder base stands on certain issues. Having relationships with all of the shareholders can help the board craft an appropriately measured response and ensure its message is disseminated properly to all shareholders.

A proactive board should not be viewed the same as a board taking defensive measures in the face of a proxy contest or hostile takeover. Some boards may be hesitant to take proactive actions for fear that the board will appear as though they are trying to entrench themselves. Communicating with shareholders is vastly different than implementing defensive measures that can (rightly or wrongly) be painted by activist shareholders as self-serving. By taking these actions the board shows shareholders that it cares about transparency and meaningful communication with the owners of the bank. The proactive approach conveys the message that the board welcomes and will be responsive to constructive interactions with shareholders.

Mike Keeley


Josh McNulty


Josh McNulty is a partner at Hunton Andrews Kurth LLP.  His practice primarily focuses on regulatory compliance, mergers and acquisitions and securities law matters for financial institutions.  His practice focuses on corporate governance, mergers and acquisitions, securities and regulatory representation for state and national banks, holding companies and other financial institutions.  He counsels state and national banks, holding companies and other financial institutions on state and federal regulatory compliance issues, including all aspects of regulatory matters involving the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller of the Currency, the Texas Department of Banking and the Consumer Financial Protection Bureau.  He advises clients on corporate governance, stockholder matters, shareholder agreements, fiduciary obligations and a broad range of public and private capital market transactions, including initial public offerings and private placements.