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E-MailMiriam Schwartz-Ziv is a Senior Lecturer at Hebrew University of Jerusalem. This post is based on her recent paper.
Shareholder meetings are one of the only opportunities most investors have to meet and interact with management, and to raise concerns regarding the firm. To the best of my knowledge, however, no study has investigated the content of shareholder meetings. In this paper, I examine the content of shareholder meetings, and focus on the transformation of shareholder meetings that occurred after Covid-19 led firms to move their shareholder meetings from an in-person format to a virtual one. I examine how this change affected shareholders’ voice.
In the first analysis, I code the transcripts and audio recordings for the 94 firms included in the S&P 500 for which transcripts and audio recordings are available for both 2019 and 2020. For each company I code transcripts of two shareholder meetings, one in the proxy season of 2019 (an in-person or hybrid meeting) and one in that of 2020 (a virtual-only meeting), making a total of 188 meetings.
When comparing the 2019 in-person shareholder meetings to the 2020 virtual ones, I find significant differences: the move to virtual meetings shortened the average meeting by 18% (from 39 to 32 minutes), decreased by 40% the time dedicated to providing a business update (from 14 minutes to 8), decreased by 14% the average time spent on answering questions (from 12 minutes to 10), and decreased by 29% the average time spent on answering a question (from 3 minutes to 2). These figures demonstrate that while the virtual-meeting format has the potential to increase shareholders’ voice, since participation is less costly, frequently, less time is dedicated to addressing shareholders’ concerns. These figures may suggest that not having visibly present shareholders, and perhaps not observing shareholders’ responses throughout the meeting, ultimately leads to the communication of less information by the company to the shareholders.
I continue the analysis by examining if additional communication barriers exist between companies and shareholders, or are amplified, in virtual shareholder meetings. To investigate this possibility, I conduct an analysis with the generous help of Mr. John Chevedden and Mr. James McRitchie (henceforth, “C&M”), two shareholders who, for many years, have been actively participating in shareholder meetings. Starting soon after the Covid-19 outbreak, I document, all the attempts and success of C&M to submit questions at shareholder meetings during the 2020 proxy season (in 88 firms). While I am extremely grateful to C&M for providing me with the hundreds of questions they submitted, my goal is not to evaluate the quality of these questions. Rather, my goal is to observe, from a shareholder’s perspective, to the extent possible, data that are not disclosed by firms, and allowing the identification of discrepancies between what firms report and the actions shareholders have actually taken.
I identify several tactics firms use to evade addressing shareholder questions at virtual shareholder meetings. I will specify here the two most prominent ones. The first tactic is that of firms presenting an incorrect claim of a lack of additional questions. This tactic is documented for 10% of the firms to which C&M submitted a question. For example, at eBay’s virtual shareholder meeting the firm addressed two questions and then stated: “At this point, there are no further questions, so we will now conclude the question-and-answer portion of our meeting.” However, the firm ignored six of the eight questions C&M submitted. Thus, the firm’s statement does not correspond to the actual number of questions submitted. At in-person shareholder meetings, shareholders typically line up in front of the microphone, and are permitted to ask one question each (if a large number of shareholders wish to ask questions, not all shareholders will receive the opportunity to do so). Given the in-person meeting setting, it would be very difficult for a firm to state, at such a meeting, that no additional shareholders wish to ask a question, when shareholders are visibly lined up in front of the microphone. By contrast, as the above example demonstrates, making misleading statements about the lack of additional questions is feasible at virtual shareholder meetings. Additionally, at an in-person meeting, shareholders can (and at times do) raise their voices to object to statements made by the firm. At virtual shareholder meetings shareholders are literally muted, and have no way to object if the firm makes misleading statements.
The second tactic is as follows: firms announce only at some point in the meeting that only questions related to proposals will be addressed. This tactic is documented for 18.3% of the firms to which C&M submitted a question. At virtual meetings, shareholders cannot audibly protest such a limitation. Limiting questions to proposals limits severely the topics to which shareholders’ questions are addressed, and consequently, in almost all firms included in the sample that used this tactic, not a single question was addressed, including those submitted by C&M. Some examples of firms that have used this tactic at virtual shareholder meetings are NetGear, Verizon, and Alarm.com.
Additionally, I show stark differences in shareholders’ involvement depending on the platform used. For example, in Broadridge meetings only 10% of the meetings had exactly zero questions addressed, while in meetings held on non-Broadridge platforms this figure is equal to 67%. This difference likely occurs because Broadridge manages essentially all the electronic voting, and thus, is able to easily identify shareholders. In contrast, non-Broadridge providers are not easily able to identify shareholders, and consequently, impose several complicated steps to do this—which, apparently, limits shareholders’ involvement.
Overall, I show that in 54.5% of the firms to which C&M submitted at least one question, shareholders faced an obstacle to submitting questions. I define an obstacle as one of the tactics I identify, or broadcasting meetings via a non-Broadridge platform. Taken together, these results indicate that, in many firms, it can be challenging for shareholders to communicate their concerns at virtual meetings.
I conclude the paper by making several policy recommendations that aim to support the goal of fostering communication between companies and shareholders in virtual shareholder meetings: (1) Require making audio recordings/transcripts public to allow transparency concerning the information shared at shareholder meetings. (2) Require disclosing the number of questions submitted and the number of shareholders who logged in to the virtual meeting, which would allow the identification of firms that have an unusually small number of questions submitted. (3) Require complete disclosure of all questions submitted to shareholder meetings and transparency on the question-selection mechanism. (4) Enhance alternatives to Broadridge by creating an automated online process that allows Broadridge’s competitors to immediately identify shareholders, or, alternatively, allows unidentified participants to submit questions.
The complete paper is available for download here.
