March 15, 2020 Communicating with Shareholders in the Time of COVID-19

By Bruce H. Goldfarb and Alexandra Higgins

It’s no secret that we’re currently facing one of the most difficult challenges of our lifetimes and, by all expert accounts, things will get worse before they get better.

In the midst of the chaos, companies may be grappling with how best to communicate with shareholders, especially since there is so much uncertainty around what will come. Let’s be clear, companies don’t need to know all the answers to communicate, but silence can be damaging in situations like this. The challenge is balancing what is necessary to communicate at this time and what is extraneous. Below, we’ve outlined the methods and themes we believe are the most effective for shareholders to hear at this time.

Who should communicate?

First and foremost, communication to shareholders at this time should come from the top, meaning the CEO and the board of directors. While companies may prefer to have one voice speaking about the company’s business, such as public relations or investor relations departments, it is important in a time like this to demonstrate a strong sense of leadership.

How should you communicate?

Ideally, the best way to communicate is through a letter to shareholders or through direct engagement with independent directors. We believe companies should not solely rely on investor relations communications or public appearances by senior management. Most large institutional investors prefer communication in the form of a letter or direct engagement calls.

What should you communicate?

The most effective things companies can communicate at this time are 1) the safety of employees, customers and the community are the top priority for the board and management at this time, 2) the company is taking actions to make sure the company is sustainable though this difficult period, and 3) the board and management are closely monitoring developments and will continue to keep shareholders informed of important developments and material changes.

Some companies have provided additional context to shareholders. For example, the CEO of STORE Capital, Christopher Volk, sent a letter to shareholders providing a corporate update due to recent material capital markets volatility and equity valuation declines. In the letter, he discussed the company’s contract quality, oil price fluctuations and supply chains, the company’s stock price and dividend, and lease requirements. He also provided some comments around why he believes the company is prepared to weather a material economic disruption.

While companies don’t need go into detail about every aspect of their business plans during this crisis, providing some reassurance to shareholders that the board is thinking about these issues goes a long way in maintaining the confidence of large institutional shareholders.

BlackRock’s global head of investment stewardship, Michelle Edkins, said in a recent interview with Reuters that the COVID-19 pandemic will likely reveal those companies that have kept a long-term focus, have strong human capital management and business continuity plans and those who don’t.

We should all take her words seriously. It’s not too early to reach out to shareholders about these issues now.

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