THEDEFINITIVEGUIDE TODIRECTOR-SHAREHOLDERENGAGEMENT

WHEN YOU HEAR‘SHAREHOLDERENGAGEMENT’

THINK‘SHAREHOLDER

TRUST’

We hope you will find this publication useful as you consider how your board will respond to thenew director-shareholder engagement paradigm.

As the circumstances of each issuer, its shareholder base and the situation it finds itself in willvary considerably, this publication is not meant to outline the specific actions a board should takein each circumstance.

It’s a little like going to see a nutritionist. In general a nutritionist will tell a patient to eat abalanced diet, avoid sugary foods, and engage in physical activity, then customize their programbased on their genetic makeup.  Kingsdale’s approach is similar:  Our initial guidance here is toseek input from shareholders, have open and meaningful discussions and build long-termrelationships, then we standby ready to assist you in developing a customized board-levelshareholder engagement program that works for you.

• What shareholders, by virtue of share position or other relevant metric, should directors befocused on?

• Are we building an ongoing outreach program or a reactive outreach program to respond toa known or anticipated issue?

• Will we be encountering long-term or activist shareholders?

• Where is the company in the maturity cycle for its industry?

• Is the focus on strategic issues, warranting meeting with a portfolio manager, or ongovernance issues, necessitating a meeting with the governance group?

• Will the topics discussed have a defined accountability set at the board level—such as thecompensation committee chair for say-on-pay issues—that will dictate which director(s)should speak?

We hope you find this document useful and it leaves you a little more prepared to encounterthe changing expectations of your shareholders.

Sincerely,

Wes Hall, ICD.DExecutive Chairman & FounderKingsdale Advisors

2

3

When you hear the phrase ‘shareholderengagement’ we want you to think ‘shareholdertrust’. Gaining the trust of your shareholdersdoesn’t happen overnight. It grows slowlythrough an ongoing commitment to transparencyand openness.

As the elected representatives of shareholders, itis critical that independent directors not onlyparticipate in shareholder engagement but assumea leadership role.

Tone from the top is important and in today’scomplex governance environment the messageneeds to be sent that your company has a culturewhere shareholder voices matter. And not justwhen there is a problem. Year-round shareholdersneed to know there is a conduit to the board,should they need it.

Historically, the paradigm for shareholdercommunication has been set up backwards.Meaning it has been structured to protect –notengage– directors from shareholders by filteringrequest for contact through the buffer ofmanagement.

For too long the choices before shareholders abouthow to make their views known to directors havebeen limited. Withhold votes on directors andagainst votes on say-on-pay are ignored unless asignificant number of shareholders happen to holdthe same view. Within this context, shareholderactivism then presents the only opportunity tomake views known if one is not content to deferto management on all issues.

So what then is a shareholder who is not willing tolaunch an activist campaign to do? And, moreimportantly, how can directors be aware ofshareholder sentiment and potential issues beforethey reach a boiling point?

There is a better way. One that flips the paradigm,enabling and equipping directors to draw outinformation and ideas from shareholders. Asstewards of shareholder capital it is important fordirectors to receive an unfettered view.

The State ofDirector-ShareholderRelations

Engaging directly with shareholders provides thisopportunity and is an approach that requires anongoing, give and take dialogue with shareholdersand is designed to endure for the long term.

The engagement process at the board level shouldbe viewed as an opportunity not to erect newbarriers for fear of making a mistake or sendingthe wrong message, but for candour and anoccasion to find common ground withshareholders.

At times this process may be uncomfortable fordirectors. They may be forced to confront somedifficult truths about their company, itsperformance, management, and sometimes evenabout themselves personally. But as more andmore companies are realizing, it is better toencounter these views privately than have themexplode publicly.

That is not to say that director level shareholderengagement is solely about damage control orissues management. It’s not. It’s about taking theproactive steps today to ensure the company’srelationship with shareholders is healthy andsustainable for the long term.

In the next three years we expect virtually all ofthe S&P/TSX 60 and a significant portion of the TSXwill have an active shareholder engagementprogram involving their directors. Already some40 issuers in the S&P/TSX 60 discuss theirengagement with shareholders in their informationcircular and we expect that number increaseswhen you consider those who have not disclosed.

2

S&P/TSX 60: Director-Shareholder Engagement

4020

4

SAMPLE BOARD LEVELENGAGEMENT

Eldorado Gold:Disclosed that boardand managementengaged ~30% ofshareholder base

Crescent Point Energy:Disclosed thatexecutives and the IRteam engaged withintop 25 shareholders

Kinross Gold Corp:Disclosed that boardand seniormanagement engagedover one-third ofshareholder base andthe two proxy advisoryfirms

TransCanada Corp:Disclosed that theboard, executive andsenior management,and IR team engagedmore than 50% ofshareholder base

Yamana Gold Inc:Disclosed that theCompensationCommittee engagedwith ~40% ofshareholder base

This momentum toward director level engagementreflects the practices we have been advocating forour clients since our inception. In fact, many of theapproaches we have pioneered have now becomemainstream such as governance roadshows.

Unfortunately, too many directors still nod theirheads and say ‘good idea’ when it comes toshareholder engagement without actually puttingthe time in to making it happen. Gone are the dayswhen a board could expect to fly under the radarand leave shareholder relations to managementalone. If boards are to oversee management andultimately be accountable to shareholders, theyneed a firsthand dose of reality and be seen asactively engaged.

We are rapidly approaching a tipping point whereshareholders who are not getting the access andinformation they expect will soon hold directorsaccountable. Companies that are slow to movetoward board level shareholder engagement willfind that the bar is being set for them by thecompanies who are and their shareholders willjudge them accordingly.

At worst, they will seek to replace directors whothey deem responsible for the gap incommunication. At best, they will not give theboard the benefit of the doubt when a period ofadversity, like an activist, confronts the company.

We have observed that an established dialoguebetween directors and shareholders can empowerand embolden boards to make the tough butnecessary calls, notably during a strategic reviewprocess, hostile takeover bid or when an activistemerges. Undoubtedly, shareholders whounderstand your strategy and see their inputmanifested in it will support it.

The choice then for those directors who currentlysit on the sideline of shareholder engagement isclear: Will you lead the wave of change or getcaught under it?

-Don Lowry Chairman Capital Power Corporation

WhatShareholdersWant

Institutional investors havebecome increasingly clear inpublic comments anddirectly to issuers that theyexpect access toindependent directors and aclear process for regularinteraction. Their frustrationstems from the fact thattoo often corporatecommunications becomes aroutine exercise of checkingregulatory boxes and issuingobligatory press releases,leaving companies with themistaken impression theyhave ‘communicated’. Thereis a big difference betweendisclosure and engagement.

There are a number ofreasons why shareholderswant to meet with directors.Some topics they wish todiscuss may concern boardresponsibility and theoversight of committeesregarding executivecompensation, audit andrisk. Sometimes they thinkmanagement has notadequately responded totheir concerns or they feelmanagement is in fact partof the problem. Often thereis the concern thatinformation is being filteredon its way to the board viathe IR department ormanagement.

Long-term shareholders arelooking to provide their point ofview as owners of your company. They want toshare their perspectives with directors and feel likesomething is actually being done to address theirconcerns. Other times, they are lacking confidencein the long-term strategic direction of the companyor want to discuss company performance, key risksin the sector or governance concerns.

TONE FROM THE TOP ISIMPORTANT AND

INDEPENDENT DIRECTORSNEED TO ASSUME A

LEADERSHIP ROLE. THEMESSAGE NEEDS TO BE YOU

HAVE A CULTURE WHERESHAREHOLDER VOICES

MATTER.

“

”5

For example, shareholders will often want detailsregarding governance that won’t necessarily be inan issuer’s circular – like how compensationdecisions were made and what level of discretionwas exercised, scorecard metrics, evaluationprocess and consideration of non-financial KPIs likesafety.

They will also want to verify and ensure they arecomfortable with a board’s statements aroundissues like succession planning, tenure and directoreducation. Too many companies mistake a passiveinvestment style for a passive approach togovernance. In reality, if a shareholder is going tobe with you in the long term, then goodgovernance is critical to ensuring returns.

What activists wantActivist investors have also become increasinglyvocal, criticizing many companies and workinggroups on the subject of shareholder engagementfor overthinking something as straightforward ascommunications between a company and itsowners. In their mind, presumably directors, byvirtue of the position they occupy, have the abilityand skill set necessary to decide who tocommunicate with.

Activists have hypothesized the effort to puttogether an elaborate communications protocol issimply an attempt to insulate directors andcompanies from inquisitive shareholders. Theywarn that approaches that are primarily designedto help a company spread its message and areabsent of meaningful attempts to gather input willfall short. They want an understanding of how theirinput, as owners, will influence corporate strategyand decisions, and if it does not, transparency asto why.

What the proxy advisors are looking forBroadly speaking, ISS and Glass Lewis’ benchmarkguidelines currently describe situations thatrequire board engagement and responsiveness,mainly in reactive circumstances.

-Jean-Frédéric Bérard Head of RelationshipInvesting for Caisse dedépôt et placement duQuébec

One of ISS’ fundamental principles whendetermining votes on director nominees is “boardresponsiveness” which outlines constructiveshareholder engagement. Within ISS’ benchmarkguidelines, they outline specific cases where boardcommunications and responsiveness are expected.

ISS clearly outlines what it considers appropriateboard responses which may include “disclosure ofengagement efforts regarding the issues thatcontributed to the low level of support, specificactions taken to address the issues thatcontributed to the low level of support, and morerationale on pay practices” among other things. ISSwill also expect shareholder engagement andboard responsiveness where there has been amajority supported shareholder proposal or formanagement proposals receiving less thanmajority support.

Similarly, Glass Lewis believes that any time 25%or more of shareholders vote contrary to therecommendation of management, the boardshould demonstrate some level of engagementand responsiveness to address the shareholderconcerns. Particularly to compensation issues,Glass Lewis believes “the compensation committeeshould provide some level of response to asignificant vote against, including engaging withlarge shareholders to identify their concerns.”Glass Lewis seeks evidence that the CompensationCommittee is actively engaging shareholders oncompensation issues and they may recommendholding Compensation Committee membersaccountable for failing to adequately respond toshareholder opposition.

Typically, issuers can demonstrate responsivenessby engaging shareholders and soliciting theirfeedback on concern items, enact and adoptchanges and modifications, and then disclose suchchanges publicly via their information circular.Engagement efforts should also be described indepth within the circular including who wasinvolved, aggregate level details on shareholdersengaged and changes made as a result.

SHAREHOLDERS’ HOT TOPICS

• Value creation

• Response to changing marketconditions

• Company performance

• Operational issues

• Long-term strategy

• Board refreshment

• Management performance

• Capital allocation

• Safety

• Succession planning

• Executive compensation

• Diversity

• Cybersecurity

• Environmental issues

• Political and social issues

6

7

Many boards insist they ‘know’ what theirinvestors think, but too often this is based onanecdotal evidence vs. empirical data gatheredfrom their shareholder base (especially bydirectors personally or an objective third party).

While many shareholders will cast votes ‘for’ aboard or agenda item and a few will vote ‘against’,the fact is that even fewer are 100% with you or100% against you. A shareholder’s view of yourcompany is not black and white. There are manyviews in between and, as the representatives ofshareholders, it is the responsibility of directors toidentify them.

In our line of business we often meet with boardsin the midst of a crisis or activist attack who saythey wish they had a better relationship with theirshareholders and knew what they were thinking inadvance. Improved communication is a cross-cutting theme that, if acted on, will make a lot ofthe other problems currently facing boardsdisappear. In fact, effective shareholderengagement is becoming a pre-requisite for highshareholder support.

Issues such as a lack of support for say-on-pay andpreference for short-term fixes at the expense ofthe long-term strategy are symptoms of theunderlying illness of an inability or unwillingnessto communicate.

Here are some of the key benefits of director levelengagement with shareholders:

Socializes shareholders. No one likes to besurprised, especially the owners of your company.Laying down track ahead of them well in advanceis invaluable. Whether it is good news like a sharebuyback, bad news like a write-down of certainassets or an acquisition that could bemisunderstood, making sure shareholders clearlyunderstand those decisions within the frameworkof your overall strategy is important.

Showcases board expertise. Meeting withshareholders allows you to showcase theexpertise, skillsets, and diversity of your board ina way disclosure in your circular can’t. It providesa firsthand opportunity to demonstrate how thosecharacteristics relate to the needs and challengesof the company.

Creates board self-awareness and increasesunderstanding of expectations. Just as moreboards are conducting board and directorevaluations, it is important to understand howyour largest shareholders view you. Talking toshareholders can give directors an unvarnishedview of their performance in relation toshareholder expectations.

The Importanceof Director LevelInteraction andBenefits to the Board

CPPIB: “Boards should encourage shareholder engagement andprovide opportunities for shareholders to communicate directlywith the board.” (2016 Proxy Voting Principles and Guidelines)

bcIMC: “As a large-scale investor, it is our responsibility tointeract and, where appropriate, challenge companies abouttheir policies and activities […] our engagement focus is drivenby the management of long-term risks and we pursue activitiesthat are expected to have the greatest impact. bcIMC mayengage directly with companies on our own or collaborativelyin partnership with other like-minded investors andorganizations.”(2016 ESG Engagement: Public Equities Prioritiesand Process)

-Don Lowry Chairman Capital Power Corporation

AIMCo: “AIMCo champions a voice over exit approach- weprefer to engage with select companies to promote bestpractices and effect positive changes, where possible, ratherthan divesting of applicable holdings.” (www.aimco.alberta.ca)

OTPP: “As a public company shareholder: […] We use tools ofengagement and proxy voting to instill good governancepractices.” (Responsible Investing Principles in Practice)

A SAMPLING OF SHAREHOLDER EXPECTATIONS

We often see management try to soften the blowwhen delivering bad news, especially if it is withregard to a specific director. As Vanguard haspointed out, “We’ve observed that the best boardswork hard to develop ‘self-awareness,’ and seekfeedback and perspectives independent ofmanagement.”

Builds trust and personal capital. Businessdecisions do not come down to the information onthe page but how much you trust the information.Meeting with shareholders and building arelationship on an individual director basis helpsto build personal capital, which serves to deepenshareholder support and investment and will workin your favour when issues arise. If you have atrusting relationship with your key shareholders,they are less likely to assume you are downplayingthe severity of a problem or spinning the truth tomake yourself look good.

Why CommonObjectionsDon’t HoldWaterDespite increasing pressure to improveshareholder engagement at the board level, manycompanies still continue to drag their heels. Hereare some of the most common objections we hearand why they don’t hold water:

How common is this? The vast majority of the largecompanies we worked with have already moved inthis direction with the mid-size ones quicklyfollowing suit. But regardless of how common thisis now, this is the overwhelming directionshareholders are pushing in. Boards shouldn’tworry about being outliers, they should be focusedon being leaders.

I haven’t heard from my shareholders, do theywant this? Overwhelmingly yes. There’s always achance that you will reach out to a shareholderwho doesn’t want to speak with you, but just thefact that you have offered will leave a memorableimpact. While a shareholder may have a positionthat is significant to your company, it may not bea significant investment to them.

Similarly, if directors start meeting withshareholders but can’t attend every meeting, thiswon’t signal there is a problem. Shareholdersunderstand directors can’t be at every meeting butthey do want to know they have the option tospeak with them.

Isn’t this the job of management? Won’t directorstalking directly to shareholders undercut mymanagement team? Directors engageshareholders at a different level than managementcan. Shareholders aren’t out to underminemanagement or drive a wedge. In fact, directorsengaging shareholders and demonstratingalignment and oversight can serve to reinforcemanagement’s position.

What if a director says something they shouldn’tor reveals inside information? The majority ofshareholders aren’t out to get inside informationfrom you, usually they want to give you theirperspective and gain a deeper understanding. Thebest way to avoid this concern is to preparedirectors properly for these meetings, somethingwe talk more about on page 11.

We do have issues, but isn’t it better to letsleeping dogs lie? Companies who thinking theycan avoid an issue by not talking about it or notdiscovering it are usually mistaken. If you haveidentified a tough question you are worried aboutanswering chances are your shareholders have aswell. If a question or issue arises from meetingwith a shareholder when would you prefer to dealwith it? Before your circular is mailed so you canaddress and solve it, or after when the only optionmay be to vote against you? We are big believersthat proactive crisis prevention is a much betterapproach than reactive crisis response.

This seems like a lot of time and our board isalready very busy. Not all directors need to be atevery shareholder meeting but a signal should besent there is a culture of transparency anddirectors are willing to meet when needed. Wewould submit that the cost in terms of time andeffort of dealing with the problems caused by notadequately engaging your shareholders isexponentially greater than the cost ofcommunicating with them in the first place. Thefact is companies are already engagingshareholders at the management level so theinfrastructure and planning is already there. Aneasy first step is for directors to piggyback on whatmanagement is already doing such as planningadditional board level meetings at investor days.

-Shan Atkins Director SunOpta, Darden Restaurants, SpartanNash, True Value Hardware Company

8

How toBuild YourDirector-ShareholderEngagementProgramBoards often ask specifically what effectiveengagement looks like. While investors expect anew approach to engagement—one that isproactive in answering tough questions andprovides access to independent directors—thereis no cookie cutter approach that will work for allcompanies and all shareholders. Here are theprinciples on which we recommend building yourengagement foundation:

1. Know How Your Largest Shareholders Think andVoteMore and more companies are telling us they’refrustrated by the growing gap they have with theirlargest investors when it comes to understandingtheir voting policies, especially those that aredifferent or stricter than the proxy advisors.Shareholder votes are now viewed by investors asa powerful tool that they are willing to use toinfluence companies, especially where no avenuefor engagement exists. Most institutional investorshave developed internal voting policies that reflecttheir investment approaches. It is critical tounderstand if there is a governance voice outsideof the portfolio manager.

While many issuers feel ill-equipped to meet theexpectations of their shareholders because theydon’t know basic facts like how they voted in thepast, even more are at a loss when it comes tounderstanding what their internal policies andprocedures are to determine a vote. Limitations ofthe current proxy system can make it verychallenging for issuers to answer simple questionssuch as who voted against our say-on-payresolution at this year’s AGM or why have oursupport levels dropped consecutively over the lasttwo years?

In order to form the basis of a targeted shareholderengagement program, it is important to not onlyidentify the shareholders you want to meet withbased on criteria like share position, but tounderstand their policies and practices. Theaccuracy of your information and precision inoutreach can help you receive the required supportlevel at your AGM or represent a key competitiveadvantage in a transaction or proxy fight.

Companies are encouraged to develop detailedinstitutional investor profiles that includegovernance knowledge, patterns and flexibility.This is not only useful in understanding impacts onshareholder votes but in designing efficient proxyproposals. Directors shouldn’t be afraid tochallenge “one size fits all” policies. Explain to yourshareholders why their policy doesn’t apply to youand how you are dealing with the specific issuestheir policy was designed for. We have seen manydirectors make their case successfully and changeshareholders’ minds—but only when they havepreviously taken the time to build a relationship.

2. Pick the Right ForumDirector level engagement has to be convenientotherwise boards and shareholders aren’t going tokeep up with the expectations that have been set.Engaging shareholders does not necessarily meantraveling to their offices and sitting down for anhour or two. Ideally boards engage face-to-faceannually, perhaps on the back of board meetingsor institutional investor days but follow up mayoccur over the phone.

One of the most convenient set ups we have seenis to have directors invite shareholders in the dayafter a board meeting when they are alreadyprepared and gathered for a series of back to backmeetings.

9

-David Richardson Chairman Air Canada

-Jean-Frédéric Bérard Head of RelationshipInvesting for Caisse dedépôt et placement duQuébec

”

COMPANIES SLOW TO MOVETOWARD BOARD-LEVEL

SHAREHOLDERENGAGEMENT WILL FIND

THE BAR IS BEING SET FORTHEM BY THE COMPANIES

WHO ARE AND THEIRSHAREHOLDERS WILL

JUDGE THEM ACCORDINGLY.

“

10

11

We recommend invitations to shareholders fordirector level meetings come from the corporatesecretary not the IRO. This will signal shareholderengagement is a board level priority and themeeting will not cover the same topics that mayhave been previously covered with management.

Engagement should take place well before proxyseason, not simply because there is time butbecause you will have plenty of runway to addressany governance issues that come up.

3. Right People, Right TaskTraditionally it has been common for a company’sinvestor relations team to engage with investors,involving management as appropriate andoccasionally the board. Now that we are advisingmore director involvement it is important tounderstand who will be doing what. Not justbetween management and the board but betweendirectors.

If more than one director will be playing a role inshareholder engagement, it is important eachunderstand not only that their job is to representthe board but what issues they should speak to ascompared to management or another participatingdirector who may have more expertise in one areasuch as compensation design. Typically investorswant to see an independent member from thecompensation or governance committees.

It is also important to recognize who you will bemeeting with as it may be different than whomanagement is accustomed to. While your IR teamand the CEO may speak regularly with the portfoliomanagers, it is the in-house governance teams whowill make the decisions on key proxy items. Assuch, a more holistic approach to engagement isneeded. They will be concerned less with thecompany’s quarterly numbers and more withgovernance issues and oversight.

One idea we have seen raised that we agree withis for boards to consider adding investor-savvytalent to the board. Having someone on the boardwho has a deep understanding of the investorviewpoint and who can help train boards how torespond will be an invaluable tool going forward.A director who knows how investors think will beable to offer a fresh take on issues you may havenot even considered.

-Shan Atkins Director SunOpta, Darden Restaurants, SpartanNash, True Value Hardware Company

4. PreparationIt is important that directors are well preparedbefore engaging with shareholders and respondingto the tough questions they will undoubtedly have.Despite all the objections we hear about whydirectors should not engage, the only downside wehave seen is when an unprepared team encountersa sophisticated investor and the meeting backfiresbecause the board representatives are not ready.

At the board level, if this is a concern the responseshould not be to avoid communicating but to seekout additional board education and training toensure all directors are able to effectively engageshareholders, should the need arise.

At the individual director level, this means thatwhile one director may have expertise in a givenarea, the directors who are participating should beable to demonstrate knowledge on key issues likelong-term strategy, compensation and companyperformance. Management should make suredirectors have been briefed on the individualshareholders they will be meeting with, includingtheir past concerns, any other relevant backgroundon their investment strategy, and the specific rolesof the individuals in the meeting – like who makesthe voting decisions and who makes the tradingdecisions.

It is important to set an agenda and ask questionsof the shareholder in advance. What are the issuesto be addressed? If this is not the first meeting,what plans are there in place to deal with theirissues and what progress has been made since theywere brought up? Based on what they want toknow, of the team available, who are the rightdirectors for this specific meeting?

Have responses prepared for the tough questionsyou anticipate from shareholders and practicethese with those who will be participating. Werecommend going so far as to role-play and coachdirectors on the best way to answer the mostuncomfortable questions. Remember, it’s not justthe content of the answers you give but how youlook when you give them. Shareholders will reada lot into your body language when you are on thehot seat so it is important to remain cool andconfident.

5. What Should We Say About Strategy?For the shareholders directors will be meeting withmost will have an interest in understanding thecompany’s long-term strategy and how thecompany is progressing along its stated path.Whereas in past years governance issues may havebeen of greater interest, most companies havecleaned up common governance concerns.Directors now have the opportunity to educateshareholders about their vision for the company,how they evaluate the viability of that strategy andat what intervals, and risk mitigation along the way.If there are issues that have come up and areemerging as a thematic amongst shareholders,such as capital allocation, directors shouldproactively frame those shareholder prioritieswithin the overall strategy.

With a lot of shareholders having been burnedsince 2008, investors are especially skeptical ofcompany performance and will seek tosubstantiate what they are seeing from directors.Shareholders are looking for confidence the Boardis involved in the strategy’s development andreview and that there is oversight when it comesto implementation. They like to know the Board iswilling to challenge the strategy in order to defendshareholder interests.

6. Talk ‘With’ Not ‘At’ ShareholdersShareholder engagement cannot be a one-way,one-and-done communication. It is crucial thereis a relationship that is formed that provides theopportunity for the company to follow up onactions that have been taken to address concernsand, if they haven’t, the reasons as to why.Shareholders want to know their opinion mattersand voices are being heard. Without this importantreport-back step, a trusting relationship cannotflourish.

Any shareholder communications program thatsimply absorbs shareholders’ views but does notreflect them and the action taken on them back toshareholders is destined to fail. It is no mistake thatthe issuers who have been awarded bestgovernances practices have an active outreachstrategy year round and describe it fully in theircircular. Specifically, they articulate the timing ofthe engagement, the number or percentage ofshareholders engaged, which directorsparticipated, how the meetings took place, whatwas heard and what was done about it. But thecircular should be the end, not the start, of thefeedback cycle.

-Don Lowry Chairman Capital Power Corporation

Communications to shareholders should not justbe another box checked as part of themanagement information circular at proxy time,but something conducted regularly and well inadvance of proxy season.

Examples we have seen work well include directfeedback from directors to the shareholders theyengaged or initiatives like a letter from the leaddirector to shareholders outlining what has beenheard and the response actions taken. We’re bigon the point about ongoing communicationsbecause we have had too many companies cometo us that have waited until proxy season or atransaction to share their actions withshareholders. The problem is by then it’s been toolate. You don’t want to have started counting theballots only to realize you have a problem—especially if it is something you have addressedthat your shareholders just don’t know about.

All of this is not to say that a clear, defined channelor process is not needed – it is and ensures one-offrequests are not lost, ignored or handled in anunnecessarily reactive or defensive manner. Whilethere are many approaches to consider, we willrule out the en vogue suggestion in the industryright now: Striking a Shareholder RelationsCommittee that would be responsible forconducting a program to meet with investors andgather their input.

The problem with this innocent enough soundingsuggestion is that the shareholders who aredemanding access will see this as nothing morethan an added level of bureaucracy and insulation.

Shareholders we talk to don’t see engaging themas a ‘special project’ to be taken on or an issue tobe managed, but a duty of all directors that needsto be ingrained in the culture of the organization.In our view, this is a responsibility the lead directorshould own in order to signal priority, engagingother directors and the corporate secretary asneeded. Something as simple as providing thecontact information of the lead director to keyshareholders can send a powerful signal that thereis a philosophical shift occurring where investorvoices matter.

12

”

THE ADVICE OFTEN GIVEN TOBOARDS SEEKING TO BE

PROACTIVE ONSHAREHOLDER ISSUES IS TO

THINK AND ACT LIKE ANACTIVIST. WE THINK THEADVICE SHOULD BE TO

THINK AND ACT LIKE ANINDEPENDENT DIRECTOR

REPRESENTINGSHAREHOLDERS TO

MANAGEMENT, NOT THEOTHER WAY AROUND.

“

13

1. Identify how your shareholdersmake their decisions, includingwho within the fund, and theirvoting history.

2. Design your outreach strategy bystratifying your shareholder baseby level of ownership or otherrelevant metric.

3. Send an invitation from thecorporate secretary to topshareholders, acknowledging notall will take you up on your offer.

4. Use all channels available and theones that are most convenient.Not all engagement needs to takeplace after a six hour plane ride,consider video conferencing.What matters most is that youare available.

14

5. Engage ahead of proxy seasonwhen everyone is less busy, butmore importantly before decisionshave been solidified.

6. Make sure directors understandtheir roles vis-à-vis managementand have been briefed on theunique details of the shareholderthey are meeting.

7. Prepare and practice for themeeting, including having a clearnarrative for the company’sstrategy.

8. Close the feedback loop. Letshareholders know what follow upactions have been taken and, ifthey haven’t, the reasons as towhy.

9. Make sure you get credit for yourefforts by fully describing them inyour circular.

Principles for BuildingA Director-ShareholderEngagement Program

The advice often given to boardsseeking to be proactive onshareholder issues is to ‘think andact like an activist’. We think theadvice should be to ‘think and actlike an independent directorrepresenting shareholders tomanagement, not the other wayaround’.

A FinalThought

In our experience there is a strongcorrelation between the relationshipa board has with its shareholdersand their likelihood of success whenfaced with adversity: the morefrequent and closer the contact, thegreater the chance of success.

ContactInformationHead Office130 King Street WestSuite 2950P.O. Box 361Toronto,ON M5X 1E2

Main: (416) 644-4031Toll Free: 1-888-683-6007Fax: (416) 867-2271contactus@kingsdalesadvisors.com

TorontoWes Hall, ICD.DExecutive Chairman& Founder(416) 867-2342

Amy FreedmanCEO(416) 867-4557

Grant HughesChief OperatingOfficer(416) 867-2341

Hooman TabeshExecutive VicePresident &General Counsel(416) 867-2337

Victor LiExecutive Vice President,Governance Advisory(416) 867-4554

Ian RobertsonExecutive Vice President,Communication Strategy(416) 867-2333

New YorkJoseph SpedalePresident, US(646) 651-1641

Sylvia HerminaSenior VicePresident(646) 651-1642

Edward GreeneVice President,Research & BusinessDevelopment(646) 651-1644

Terence J. KivlehanVice President,Corporate Actions(646) 651-1643

Sean Di SommaVice President,Sales & BusinessDevelopment(646) 651-1645

Kevin AutenVice President,Operations(646) 651-1646

Our Services Include:

Strategic & Defensive AdvisoryCommunicationsProxy SolicitationDepositary Agent

Governance AdvisoryVoting AnalyticsInformation Agent & Debt ServicesAsset Reclamation

Being the best in our field means reliablydelivering the results our clients want—no matter the challenge.

Our track record of success is backed byour unparalleled expertise and culture of24/7 client service.

Regardless of what your needs are—from governanceadvisory, corporate communications, shareholderidentification, depositary, to full proxy solicitationfor any type of voting matter—Kingsdale has thecomplete solution for you.

There’s a reason why we’re engaged onmore proxy contests than all others combined:

We win.

New York745 Fifth Avenue19th FloorNew York, NY 10151

Main: (646) 651-1640Toll Free: 1-844-740-3227Fax: (631) 504-0492contactus@kingsdaleadvisors.com