Key Takeaways and Best Practices from Virtual Shareholders Meetings in 2020

Douglas K. Chia is the President of Soundboard Governance LLC. This post is based on his Soundboard Governance memorandum.

In 2009, Broadridge Financial Services launched its virtual shareholders meeting platform, pitching it to companies as a convenient and economical alternative to traditional in-person annual meetings and a way to increase shareholder participation. Four companies used the platform that first year, with only one using it completely in lieu of an in-person meeting (now commonly referred to as “virtual-only”). After 2009, uptake was slow, with the number of companies adopting the virtual-only shareholders meeting (“VoSM”) format not breaking 100 until 2016. [1] The pace of VoSM adoption picked up, but only to 212 in 2017 and 300 in 2019. [2] A committee of interested constituents was convened in 2018 to develop a set of “best practices” for virtual annual meetings. [3] However, the sample size the group had to study was small—236 total, both virtual-only and in-person supplemented with virtual (now commonly referred to as “hybrid”).

As we have witnessed, the COVID-19 pandemic forced companies with annual meetings scheduled during the months of March through June 2020 (i.e., almost all December fiscal year-end companies) to seek alternatives to their already-planned in-person meetings, with VoSMs being the most obvious solution. [4] And they did what was necessary to make the switch happen quickly and en masse. By May 1st, 65 percent of S&P 500 companies had held or announced plans to hold VoSMs, with almost 90 percent of those companies adopting it for the first time. [5]

Soundboard Governance produced the following analysis based on attendance at a sampling of ten [6] VoSMs during the spring 2020 annual meeting season.

Key Take-Aways

Companies did a good job. Given the very short time they had to deal with all of the legal (state laws, bylaws), regulatory (SEC, stock exchange), technology (VoSM platform, home tech), and logistical requirements (staffing, behind-the-scenes communication), companies on the whole did an admirable job executing the VoSMs forced by COVID-19 related restrictions. A lot had to go right for this to happen, and corporate secretaries were the key actors on the company side. The primary responsibility of the corporate secretary—supporting the board to fulfill its fiduciary duties— had already ramped up starting in February (historically the most demanding month for corporate secretaries), when companies began to monitor the spread of COVID-19. For some, the cadence of board meetings went from quarterly to weekly, and written board updates went from monthly to every other day. Adding an unanticipated switch to a VoSM challenged them to go well above and beyond the normal call of duty.

VoSM service providers deserve credit. The corporate governance community tends to be highly critical of Broadridge, Computershare, and others in the transfer agent business (primarily because they are principal actors with vested interests in the overly complex US “proxy plumbing” system). This year, these service providers came through in the face of a sudden and unforeseeable surge in demand starting at the beginning of March. Like Zoom, Google Meet, WebEx, and other web-based video communications platforms that have been heavily relied upon during the COVID-19 quarantine, it is hard to imagine what the 2020 annual meeting season would have been like had VoSM technology not yet existed. Either the board chairs, corporate secretaries, other essential personnel, and shareholder proponents would have had to put themselves in harm’s way to conduct in-person meetings, or companies would have had to postpone their meetings until late summer or fall. Even with the technology available, capacity could also have been an issue this year given the small number of VoSM service providers that have collectively handled, up until now, many fewer VoSMs and been given longer lead times.

Getting into the meeting was an uneven experience. Attending a VoSM as a shareholder was smooth at some companies, but not at others. Record holders at some companies had to take extra steps well in advance to obtain additional information, such as a legal proxy or separate control number, to enter, and at other companies the beneficial holders had to. This year was particularly challenging, since some companies’ notice for the change to VoSM went out well after the original proxy materials were distributed, and the slow-down of the US Postal Service in some areas of the country meant many shareholders likely did not have a reasonable amount of time to obtain the required documentation. This inconsistency in what a shareholder needs to do to attend a VoSM—with the ability to participate as required by law—raises an important fairness issue for the future of VoSMs.

Hearing is not seeing. In years past, some VoSMs have featured video broadcasts where attendees could see the chair, secretary, and other presenters speaking in real-time. This year, almost all VoSMs meetings were audio-only. Audio-only is obviously a downgrade from video and an even bigger downgrade from in-person. Some attendees like to see body language or “size up” the directors at annual meetings and observe their level of attentiveness. There is no legal right for shareholders to view the proceedings of a meeting (and directors are not legally required to attend), but it is an opportunity that shareholders have had for decades, and video can achieve that. Service provider bandwidth issues due to the sudden surge in demand may have necessitated audio-only meetings this year, but in future years, video will be an option for companies, and shareholders will likely insist on it for VoSMs to replicate the in-person experience.

Voting was easy. Voting on a virtual platform is actually easier for a shareholder than voting at an in-person annual meeting. It may create more work for the people who collect, count, and inspect the votes, but for a shareholder, being able to vote online and change votes during the meeting is much easier than the manual process of obtaining and casting votes on paper ballots at an in-person meeting.

Asking questions was easy; getting answers was not. Having a question submission box on the screen makes it very easy to ask questions. Importantly for some attendees, it eliminates the potential stage fright that comes from standing before an open microphone and addressing an audience. More companies are also giving shareholders the ability to ask questions in advance of the meeting. However, the probability of receiving an answer at a VoSM is much lower than at an in-person meeting. Surprisingly, the company does not know who has submitted a question from the VoSM platform. Management sees the text of all questions, but not the identity of the inquirers. For a shareholder, the downside is that the company does not know how to find him/her to provide an answer if the company does not get to the question during the Q&A session. However, the upside for a shareholder is that they can ask as many questions as they want, even if the rules of order specify that the number of questions each shareholder may ask is limited.

Live shareholder support was lacking. Companies and service providers varied on how much live support they provided for problems shareholders may have had during the VoSMs. Some landing pages in the series of pages a shareholder had to click through listed help-line numbers, while others did not. Some companies disclosed help-line numbers in their meeting notices, but that meant shareholders in need of support had to have the notice with them at the time of entry.

The Best Practices

Discussions among corporate governance industry groups to identify agreed-upon “best practices” for VoSMs have already started and will become more formalized later this year. Based on the set of 2020 annual meetings observed by Soundboard Governance, the following is a list of “The Best Practices”—the most advanced and shareholder-friendly features a company may consider for a future VoSM.

  1. Provide prominent, “plain English” instructions in the proxy materials on what a shareholder needs to do to attend, vote, and ask questions.
  2. Give shareholders the ability to ask questions in advance of the meeting.
  3. Make it easy and give as much time as possible for a shareholder to obtain in advance whatever separate control number, legal proxy, or other information they might need to enter the meeting.
  4. Start the meeting at a reasonable time of day for people in all continental US time zones to attend.
  5. List a help-line number, or have an online chat feature, on every page the shareholder has to go through to get into the meeting and on the main meeting page.
  6. Post the Annual Report, Proxy Statement, Rules of Order, and meeting Agenda on the main meeting page.
  7. Have a prominent link on the main meeting page for record shareholders to access the Registered Shareholder List electronically.
  8. Provide real-time video footage of board and management participants.
  9. Provide real-time closed captions for the hearing impaired.
  10. Keep the polls open until the end of the Q&A.
  11. Remind shareholders to include their name and email or phone number with the question they submit if they want to receive an answer.
  12. Allow a shareholder proponent to call into the meeting to present their proposal or send a pre-recorded message to be played at the meeting.
  13. Give each shareholder proponent a minimum of three minutes to present their proposal.
  14. Provide a detailed Preliminary Voting Report (including the percentages of votes cast For and Against each item of business) at the end of the meeting, and post the final Inspector of Election Report on the company’s website.
  15. Announce how many shareholders attended the meeting.
  16. Allow shareholders to call into the Q&A session to ask questions live on-air via a dedicated phone line.
  17. Take the time at the meeting to answer all appropriate questions that are submitted.
  18. Post a written Q&A for all appropriate questions asked in advance of and during the meeting on the company’s website after the meeting.

Endnotes

1Principles and Best Practices for Virtual Annual Shareholders Meetings,” Broadridge Financial Solutions, Inc. (2018).(go back)

2Virtual shareholder meetings, 2019 facts and figures,” Broadridge Financial Solutions, Inc. (2020).(go back)

3 “Principles and Best Practices for Virtual Annual Shareholders Meetings.”(go back)

4Also limited by the absence of permissive statutes for VoSMs in many states, as of the date of mailing notices of annual meetings. See “States that Allow and Prohibit Virtual Shareholder Meetings, April 1, 2020,” Broadridge Financial Solutions, Inc. (2020).(go back)

5Alyson Clabaugh, Erin Connors, and Rob Peters, “Proof of concept: an Intelligize report on virtual annual shareholders meetings” (May 19, 2020).(go back)

6See http://www.soundboardgovernance.com/blog for reports and analysis from the 2020 VoSMs of Alphabet Inc.; Berkshire Hathaway Inc.; BlackRock, Inc.; Bristol-Myers Squibb Company; Danaher Corporation; Exxon Mobil Corporation; General Motors Company; JPMorgan Chase & Co.; Intel Corporation; and Wells Fargo & Company.(go back)

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