Virtual-Only Shareholder Meetings: Streamlining Costs or Cutting Shareholders Out?

Robert Richardson is manager of North American Proxy Research at Glass, Lewis & Co. This post is based on a Glass Lewis publication by Mr. Richardson.

In a fast-paced technological world, where efficiency and streamlining are often viewed as key drivers of success, it’s no surprise that companies have started to livestream their shareholder meetings and to allow investors to participate remotely. Adding an online component can broaden the franchise, giving shareholders the chance to attend the “hybrid” physical/online meeting even if they can’t travel to it.

However, more and more companies are going a step further—not just adding an option for online participation, but removing the in-person alternative. The 2017 U.S. proxy season saw 163 companies hold virtual-only shareholder meetings, an increase from 122 virtual-only meetings held during the 2016 U.S. proxy season.

Virtual-only meetings are held exclusively online with no in-person participation or physical location. They have been met with skepticism and resistance alike from investors, as well as the Council of Institutional Investors (CII). In a press release announcing its intention to engage with investee companies over the issue, the NYC Comptroller expressed concerns that some companies “are likely using online-only meetings to insulate themselves from uncomfortable interactions with concerned shareholders,” and announced its intention to vote against directors at companies that hold virtual-only meetings. CII took a more diplomatic tone in a letter to Broadridge, acknowledging potential benefits but maintaining that “[i]nvestors expect virtual meeting technology to enhance the ease of attendance and the quality of the meeting without harming its integrity….”

So, why are companies increasingly moving towards virtual-only?

The advantages of such meetings are clear from an issuer perspective. Hosting virtual-only meetings can cut out some of the standard costs of holding annual in-person shareholder meetings, as online meetings are typically less expensive and time-consuming. Renting function rooms and catering costs are among some of the expense factors that would be eliminated. And as the NYC Comptroller suggests, it also gives the company more control over the proceedings, potentially reducing the chances that the board or management will be embarrassed by a tough shareholder query.

And that’s where investor concerns come in. While an online meeting may increase the number of attendees, it can also serve to reduce those attendees’ level of participation. For example, a trend in virtual-only meetings is for shareholders to submit their questions to the company prior to convening the meeting. There is a fear that this allows the company the discretion to filter shareholder questions to its own taste, resulting in some of the more difficult or controversial questions getting bumped down the priority list or even ignored. Even if fair play were guaranteed, for the less tech-savvy shareholder, removing the opportunity to voice concerns in a public, in-person, forum, where that individual is more at ease, could be construed by some as an infringement on shareholder rights.

So far, those looking to push back against the trend have been largely stymied. The 2016 proxy season saw several virtual-only companies receive shareholder proposals seeking the return of a traditional, physical meeting format. These proposals were granted “no-action” requests from the SEC, citing a company’s right to govern the format of annual meetings. With virtual-only meetings apparently not going away, the discussion may be shifting towards finding a virtual-only format that protects the quality of the meeting. For example, CII’s aforementioned letter to Broadridge set out a range of features that should be offered to virtual meeting attendees, including a transparent system for monitoring submitted questions, and the opportunity to virtually “approach the dais” and speak to company representatives following the meeting.

As more and more companies move towards virtual-only meetings, the debate on how (and whether) they should be conducted looks set to continue. In the meantime, absent an accepted best practice format, investors may get less access to the board, management, and other shareholders at virtual-only meetings—making pre-meeting preparation, including engagement with issuers and between investors, all the more important.

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