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US institutional investors and companies back new engagement platform

BlackRock, State Street and Florida pension fund among backers

A group of board directors, institutional investors and corporate lawyers in the US are backing a new platform for engagement about corporate governance and other important issues facing listed US companies.

The platform is called the “Shareholder-Director Exchange” (SDX) and the idea is that board directors meet with institutional investors to discuss corporate governance, executive pay, management performance and deal activity. To ensure compliance with US stock exchange disclosure laws, the parties may not discuss issues like daily operations, financial results or share buyback plans.

SDX has been formed by law firm Cadwalader, Wickersham & Taft, communications consultancy Teneo and peer-to-peer communications firm Tapestry Networks – with additional support from investor communications firm Broadridge Financial Solutions.

To set up the engagement, investors using SDX contact the company’s secretary, who in turn arranges a meeting within 20 days of receiving the request. The 10-point SDX Protocol, a set of guidelines to provide a framework for shareholder-director engagements, calls for the non-executive board chairman and other directors to attend as well as senior members from the investors wanting to engage.

The project has a 17-member working group of leading investors and directors (see below). These include representatives from some of the US’s biggest institutional investors, such as BlackRock, State Street Global Advisors and the Florida State Board of Administration (SBA), a $167.5bn (€123.7bn) pension fund.

“When boards want to know the views of their shareholders, they should go direct to the source,“ said BlackRock Corporate Governance Head Michelle Edkins, who was involved in the platform’s creation. “The direct board to shareholder engagement proposed in the SDX will help build mutual understanding on key governance matters when necessary and appropriate.”James Woolery, deputy chairman of New York corporate law firm Cadwalader and the SDX’s architect, said the platform’s time had come, as investors and directors in the US were beginning to appreciate the value of engagement. “Engagement improves transparency, mutual understanding and the overall quality of governance in the market,” he said.

The initiative comes as investors in the UK are developing an Investor Forum as a place for investors to discuss governance issues with companies.

Working group members:
• Glenn Booraem, Principal, Vanguard
• Les Brun, Director, Automatic Data Processing, Broadridge, Merck
• Stu Dalheim, VP, Shareholder Advocacy, Calvert Investments
• Michelle Edkins, BlackRock
• Tim Goodman, Head of North American Engagement, Hermes EOS
• Bonnie Hill, Director, Home Depot/Yum!
• Labe Jackson, Director, JPMorgan Chase
• Andrew Letts, Head of Corporate Governance, State Street Global Advisors
• Linda Fayne Levinson, Director at Hertz, Jacobs Engineering, NCR, Western Union
• Mike McCauley, Senior Officer, Investment Programs & Governance, Florida SBA
• Eileen Mercier, Director, Ontario Teachers’ Pension Plan
• Tom O’Neill, Director, Archer Daniels Midland, NASDAQ OMX Group
• Nathan Partain, CIO, Duff & Phelps
• Debra Perry, Director, Korn/Ferry & PartnerRe