The Shareholder-Director Exchange: Introduction and Protocol

February 2014

The Shareholder-Director Exchange (SDX) is a working group of leading independent directors and representatives from some of the largest and most influential long-term institutional investors. SDX participants came together to discuss shareholder-director engagement and to use their collective experience to develop the SDX Protocol, a set of guidelines to provide a framework for shareholder-director engagements. While the decision to engage directly with investors should be made in consultation with or at the request of management, the 10-point SDX Protocol offers guidance to US public company boards and shareholders on when such engagement is appropriate and how to make these engagements valuable and effective.

Changes to the corporate governance landscape, including an increasing focus on better and more effective governance practices, the frequency and scale of activist campaigns, the increased use of proxy advisory services, and an increased understanding of the potential benefits of direct engagement, have led institutional investors and public company boards to review their current approaches to shareholder-director engagement. More institutional investors are seeking meetings with the public company directors they elect, and more directors are accepting these requests. Some boards are proactively requesting meetings with significant shareholders.

In December 2013, Securities and Exchange Commission Chair Mary Jo White emphasized the importance of direct engagement by stating “the board of directors is – or ought to be – a central player in shareholder engagement.” 

This Introduction synthesizes the perspectives of participating directors, institutional investor representatives, and other thought leaders concerning four key reasons why the time is right for the SDX Protocol:

  • Shareholders are increasing their involvement with public companies and are often focused on corporate governance matters

  • Directors are responding by engaging more frequently with the company’s owners

  • Both investors and directors are realizing significant value from direct engagement

  • Perceived barriers to engagement can be avoided or addressed