Risk & Compliance

How to Prepare for Irate Shareholders

Here are likely questions CFOs and other top execs will field at this year's annual meetings
Jennifer CaplanJuly 18, 2001

When the economy is strong and corporate profits robust, shareholders are generally supportive and relatively conciliatory. Shareholder meetings are also sparsely attended.

When the going starts to get tough, however, they become a lot more confrontational, and shareholder meetings tend to become grilling sessions.

So unless corporate profits start to pick up quickly, financial officers are likely to come under increasing pressure to build trust by convincingly articulating their company’s plans, and candidly answering pressing questions from skeptical, and often irate shareholders.

This means that finance chiefs must be able to talk not just about financial performance, but also about broader and often rapidly changing issues, such as merger strategies in a post-pooling of interest world, plans for Web-based communications with investors, the specific impacts of changes in accounting rules for derivatives and hedging, and the evolution of E-business strategies.

Preparing for shareholder meetings can thus often be a daunting task. But, as is the case when preparing for any test, one’s performance is usually better when potential questions are anticipated and properly addressed before the examination.

Deloitte & Touche has put together a guide to help finance chiefs and investor relations executives prepare for stockholder meetings in 2001, a year that has already proven to be trying from an investor relations point of view. The company has put together a list of questions to help corporate leaders anticipate and respond to issues stockholders are likely to bring up. (Of course, many of this year’s scheduled meetings have already taken place).

Questions in the guide’s general section apply to most companies, but industry-specific questions covering the construction, consumer businesses, electric and gas utilities, energy, entertainment, financial services, health care, high tech, manufacturing, media and publishing, real estate, telecommunications, transportation, and travel and leisure industries, are also included.

Here are a number of key questions that execs should anticipate fielding:

Mergers & Acquisitions:

  • Has the company examined the requirements for pooling-of-interests accounting to determine if it can use this method?
  • Does it consider the potential impact of its actions on its ability to use pooling-of-interests?
  • How would elimination of this method affect the company’s strategy?
  • How does the company currently evaluate goodwill for impairment?

For more information on the new accounting rules regarding mergers and acquisitions, see “The Goodwill Games: How to Tackle FASB’s New Merger Rules.”

E-Business:

  • Has the company implemented a customer relationship management (CRM) solution? If so, which software was selected, and why? [This question applies to other types of business software including enterprise resource management (ERP) and supply chain management (SCM)]
  • Has the company evaluated or is it participating in business-to- business exchanges? On which exchanges does the company anticipate participating?
  • How much is the company investing in e-business compared to its peers?
  • What return on investment is expected from e-business activities?
  • Does the company have the human capital, culture, strategy, and leadership required to achieve its vision?

Financial Reporting

  • What factors does management consider when determining whether errors in the financial statements are material in responding to the SEC’s issued guidance on the use of materiality assessments in preparing financial statements? Does the company use a percentage threshold or other rule-of-thumb when evaluating errors?
  • How will the adoption of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, impact the company’s financial statements? Does the company have derivatives it will be required to record? Are the company’s financial systems prepared to handle the additional accounting and reporting requirements for derivatives?
  • What effect has FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, had on the company’s financial statements and the way it issues stock or stock options to directors?
  • What effect has the issuance of SEC Staff Accounting Bulletin No. 101 had on the company’s revenue recognition policies? See rules.
  • Does the company anticipate adopting International Accounting Standards (IAS) when it issues audited financial statements outside the United States? What are some of the major differences between the company’s US GAAP financial statements and its IAS financial statements?

These are just a few issues shareholders are likely to raise as they increasingly demand information that could affect their investments. The more bases you have covered, the better the likelihood that shareholders will hold on to your shares.

For Deloitte & Touche’s complete guide, Click here.

4 Powerful Communication Strategies for Your Next Board Meeting