“Private” Company Doesn’t Mean all Things are Private

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by Rob Swystun, Pristine Advisers

Private companies have the obvious advantage over their public counterparts of having more control over the financial and other business related information they disclose. Basically, they can be as reticent or as loquacious as they want. Having said that, though, it’s always a good idea to make sure your shareholders are well-informed.

Although private companies get to forgo the strict Securities and Exchange Commission filing requirements of public companies, communications can be an even bigger challenge for private companies, as they have to walk a fine line between disclosing too much, which can be bad for competitive reasons, and disclosing too little and ending up with disgruntled shareholders. And obviously companies want to keep their shareholders gruntled. (What? It’s a word.)

As Dix & Eaton has pointed out, Private companies can also fall victim to activism among shareholders, which can often be exacerbated by the ownership models of private companies, which many times involve generational family ownership and tightly knit business operations.

Many activist concerns that are raised in public companies can be raised among the shareholders in private companies, including:

  • inadequate board composition
  • insufficient attention to shareholder proposals
  • questionable reporting or accounting practices
  • excessive compensation
  • succession planning
  • quality of management
  • operational problems
  • disagreements about strategic direction
  • enterprise risk management
  • other governance issues

So it’s crucial for private companies to decide precisely the level of information that shareholders (including employee shareholders) will be provided with and to communicate that information on a regular basis and make sure it aligns with the board of directors’ strategic objectives and messaging.

Disclosure committee

To develop and implement an effective shareholder communication policy, establishing a disclosure committee is a good first step. This committee should include the company’s authorized spokesperson or spokespeople, the board and the company’s general counsel. It should meet quarterly or more often if necessary and its main function should be to:

  • assess the company’s disclosure practices;
  • ensure that the company is consistently following its own communication policy;
  • evaluate the quality of information flow;
  • review feedback; and
  • confirm that all targeted audiences understand the outgoing messages.

It’s also sound communication practice to be prepared for potential operational and reputational issues by having prepared contingency messaging at hand that can be quickly reviewed and easily altered if necessary to distribute in crises or other situations that require immediate responses.

To develop a contingency communications plan that will help prepare against potential shareholder activism, a private company needs a keen understanding of current shareholder perceptions, their motivations, their demands and complaints and what events could potentially trigger such activism.

The contingency communications plan should involve:

  • Preparing a strategic messaging platform that addresses recent and future company performance, long-term and short-term corporate goals, industry and market issues, governance practices and more.
  • Establishing a response team of public relations and crisis communications advisors with activist expertise, and having that team work closely with legal and financial advisors.
  • Developing response modes for all stakeholder groups.
  • Elevating the level of social media monitoring, which can provide early clues about shareholder sentiment.
  • Mobilizing credible third-party testimonials.

Just like the fire drills from school, it’s also a good idea to do a dry run of a situation where you would be using your contingency communications plan. Better to find out where the weak spots are ahead of time.

You want to set the bar high for your communications strategy, especially a crisis one. It will help your company protect its hard-earned reputation, help deliver its message and help to defend the company, if necessary, in both public and private arenas. Effective and consistent communication with shareholders is a vital part of the responsibility of a private company’s board.


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