Investors and their directors need to talk It would be easy to dismiss the "shareholder spring" as a spasm against bank pay. Yet it has affected companies as diverse as AirFrance-KLM, retailer Carrefour, oil company Shell and WPP, the world's biggest advertising group, and stretched from the US and UK, to France, Germany and Switzerland. Like the Arab spring it was rather grandiosely named after, it has helped force out the leaders of drugs group AstraZeneca, Aviva, the insurer, and media group Trinity Mirror. In order to find out how institutional investors were savouring their victories, I travelled to Rio de Janeiro last week to attend the annual conference of the International Corporate Governance Network. ICGN is a global membership organisation with a mission to raise standards of corporate governance and consists largely of institutional investors who collectively represent funds under management of about $18tn. Leading View What was most striking, however, was not the air of resignation rather than jubilation. For many investors, the revolt is a small blip compared with the lack of even rudimentary shareholder rights in many markets. Even in Europe and the US, where shareholders have been flexing their muscles this proxy/annual meeting season, there is a strong sense that while voting against a pay package is the only tool shareholders have to voice their disapproval, it is a blunt weapon when investors may want a change of strategy or chief executive. So why don't boards engage more directly with the shareholders who elect them into office? David Pitt-Watson, chairman of Hermes Focus Asset Management, told the gathering that engagement was difficult and it was up to shareholders to figure out how they were going to deal with this over the next couple of years. He also upped the ante. "Investors should intervene when things are going right, not just when they are going wrong," he said. Yet the limitations faced by shareholders cannot be underestimated. Indeed, only 17 per cent of the Rio delegates believed there were sufficient investors in the world with the long-term perpective and scale required to engage effectively with boards. In other meetings I have attended this month with US board directors, I have heard a litany of similar concerns. One director of a large blue chip multinational told me: "I put myself in the camp [that believes] that management should do all the speaking." Another said: "There is a great deal of uneasiness about directors establishing relationships directly with investors and a perception that they could inadvertently get in management's way." Their main worry was that shareholders might discern differences between themselves and the company's management. Other directors, meanwhile, were anxious of falling foul of rules such as the US Securities and Exchange Commission's Regulation Fair Disclosure which bans the selective release of information. One lead director of a large US company told me the "danger is higher than ever; one could blunder quite easily in saying something the company has not disclosed." However, Geraldo José Carbone, a director of EcoRodovias, a listed infrastructure and logistics company in Brazil, told the ICGN meeting: "If we can't have a dialogue for legal reasons, we can at least listen." For their part, directors at the Rio meeting were perplexed by the lack of interest that shareholders display in engaging with their companies outside of the heat of the proxy/annual meeting season. David Frick, a member of the executive board of Nestlé, spoke of a programme to invite its largest shareholders to meet with the chairman in various cities in the US and Europe. He said shareholders "either decline or simply don't turn up to the meetings." Still, some directors were supportive of increasing the dialogue they have with investors. Carlo Secchi, lead independent director of Italy's Pirelli, said it would be "an interesting experiment." He added that "strategy, risk management, corporate governance, and sustainability are good topics for dialogue." As shareholders move into their quiet period with most annual meetings out of the way and most proxies voted on, it seems that there is a window of opportunity for smart directors to enter into a dialogue that could head off a repeat of the shareholder spring next year. As I took a brief post-conference walk across Ipanema beach I was reminded that it takes two to samba.