Case Study: Democratizing Corporate Governance: Aflac Wins Shareholder Support by Giving Them a ‘Say on Pay’

Company: Aflac Agency: Fleishman-Hillard Timeframe: 2007-2008 The American Family Life Insurance Company (Aflac) may be best known in the consumer marketplace for its quirky, quacky duck mascot, but the insurance giant made a different type of impression on the investor community with its "Say on Pay" initiative. The idea began germinating in 2006, when some shareholders inquired about voting on executive compensation practices--a highly controversial topic that has come under a great deal of scrutiny in recent years. What followed the shareholders' initial inquiry would become a historic moment in the context of corporate governance. Democratizing Shareholder Relations Grants Power To The People Around the same time shareholders began getting restless about executive compensation practices at public companies, Aflac's communications team was charged with reinforcing the company's rationale for its own compensation practices, as well as its pay-for-performance commitment, to the investor community via business media. This effort centered on Aflac CEO Dan Amos' decision to give shareholders a "Say on Pay," inviting them to vote on the management's practices. It was an unprecedented gesture of transparency. The only problem: In order for the vote to be a success for Aflac's reputation, the results had to be overwhelmingly in favor of the company's management. Thus, the communications team, along with professionals at agency-partner Fleishman-Hillard, had its work cut out for it. The "Say on Pay" vote was set to take place on May 5, 2008, giving Aflac executives just over a year to: Convey to investors that the company's executive compensation program was fair and appropriate; Link the company's positive performance to its current leadership; Sustain media coverage of Aflac's "Say on Pay" from the February 2007 announcement to the May 2008 vote; and, Leverage the "Say on Pay" issue to extend the company's credentials as an ethical company committed to corporate governance. But these objectives came with their fair share of potential land mines. "The 'Say on Pay' initiative presented risk to the controversy about executive compensation, as Aflac might be perceived as telling CEOs of other large corporations what to do," says Jon Sullivan, Aflac's executive publicist/external communications, identifying the initiative's additional challenges as "remaining sensitive to the implications of speaking out on a controversial issue, [managing] logistics associated with being headquartered in a small city [Columbus, Georgia] and ensuring primary spokespersons were on message." Winning The Hearts Of A Tough Crowd The challenges the communications team was facing were certainly not inconsequential, and the subsequent strategies developed to overcome them would need to incorporate a number of functional areas: media relations, investor relations, risk management and, potentially, crisis communications. With that in mind, the communications executives ramped up a robust outreach strategy that hinged on the very crux of "Say on Pay" itself: transparency. The team negotiated unprecedented access to the CEO for select media, including CBS and NBC, for which Amos appeared to reinforce the "Say on Pay" messages. The executives also referred reporters to pertinent shareholder activists--typically among the greatest critics of corporate governance--to provide a counterintuitive perspective on the story. Efforts like these both underscored Aflac's unusual move to invite voting on executive compensation and revealed its intrinsic ethical approach to the issue, all to an audience that is traditionally very critical and skeptical. "The targeted audience for our message was primarily the business community," Sullivan says. "Secondary audiences included potential and current Aflac shareholders and institutions that hold approximately two-thirds stake in Aflac." Vulnerability Breeds Opportunity, Not Contempt Once Aflac opened its doors to these audiences, it conducted proactive media outreach and, even more important, it armed Amos with various talking points that justified the fairness of the company's compensation. For example: From the time Amos became CEO in August 1990 through December 2007, Aflac's total return to shareholders exceeded 3,435%, compared to the 660% average for the Dow Jones Industrial Average and 510% for S&P 500. During the same period, the company's market value grew from $1.2 billion to $30.5 billion. Total revenues grew from $2.7 billion in 1990 to $15.4 billion in 2007. Amos helped grow Aflac's market capitalization from $1.3 billion to $29 billion. Translation: If someone purchased 100 shares in the company 17 years ago, they paid $1,600. Today, the shares would be worth nearly $45,000. These numbers made a compelling argument when Amos faced the media, but the team also equipped him with information to address the story in a broader context; after all, media are almost unanimously more inclined to tell a story that supports a trend or larger news hook. As for the specific media targeted, Sullivan says, "The campaign consisted primarily of traditional print and electronic earned media. However, we did target the emerging channels of communication, including Webcasts on, and These Internet-based mediums provided the ability to reach a variety of audiences, many of whom are more tech-savvy and desire information fast in a faster-paced information society." Tallying The Votes On Election Day When it came time for shareholders to cast their votes on May 5, 2008, they had more than enough reminders that Aflac is committed to fairness and transparency. The media coverage was significant--more than 350 million impressions, and a $4 million ad value--but the real coup came with the shareholders' decision: 93% voted to affirm Aflac's executive compensation, with only 2% voting against it. In short, Aflac won the support of the investor community by a landslide (not to mention the 2008 PR News Platinum PR Award in the Financial/Investor Relations category), at the same time becoming the first public company in the United States to permit a shareholder vote on the issue. According to Sullivan, "While the issue of 'Say on Pay' was fairly straightforward, the company was diligent in its efforts in being as concise and clear as possible to deliver the message: Alfac listens to its shareholders." PRN CONTACT: Jon Sullivan, Best Practices For Launching An IR Initiative When asked to recommend best practices to communications professionals who are planning an IR or financial communications campaign, Jon Sullivan, Aflac's executive publicist/external communications, offered the following tips: Ensure a cohesive message: Messages targeting investors are, in effect, targeting the brightest, most knowledgeable portion of a company's audience. It stands to reason that they have the most interest in knowing about the company, its practices and its culture, meaning that mixed or incomplete messages will be greeted with concern about the direction of the campaign. It is imperative that the primary media spokespeople be on the same page with regard to the message. Ensure the message is appropriate: Aflac CEO Dan Amos maintains a steadfast policy of speaking with shareholders and listening to what they have to say. The key to an effective IR campaign is to ensure that the investors are part of the solution. Aflac was very careful to include shareholder activists in the communications initiative, and as a result, add third-party credibility to the communication. Consider your medium: Not all media is good media. At times it is in the best interests of a company to weigh reputational risk based on the track record of a particular journalist or publication. Be prepared to be selective about spokesperson access, and endure the possible consequences, in exchange for an outcome that is favorable overall. Oftentimes the medium, though it might be substantial, is not the appropriate forum for the message. It is wise to consider these factors when determining which publications are desirable and which you are better off bypassing. Also note that the status of whether a medium is appropriate or not can and often will change during the course of a campaign.

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