Charles Elson
Editor's Note: Changed — For Better or Worse?
By Charles Elson
Charles Elson

The COVID pandemic has been an event that none of us has experienced before and, I hope, will never experience again. It has altered our lives in ways that none of us could have imagined. As we begin to see its end, the overriding question is: How will this ultimately change the way we live? For the corporate world, and its directors, the question is especially pressing.

The crisis has changed the functioning of corporate boards significantly. Will it be only a transitory alteration of accepted norms, or will the effect be more long-lasting?

Because of the restrictions occasioned by the COVID outbreak, the vast majority of boards haven’t met in person since the declaration of the pandemic. Meetings have been held by telephone or, even more popular, Zoom or similar video conferencing services. It is not that directors have happily chosen to forgo in-person meetings, but the danger of the times requires such actions. Necessity, not choice, has driven the change.

The same may be said of the annual shareholders meeting. Traditionally held in person at a set physical location despite the fact that few, if any, investors would show up, this past proxy season saw most shareholder meetings go “virtual.” The electronic approach had been extolled for some years by certain corporations and voting technology providers but achieved little traction until the viral events of 2020 made such a shift required.

Now that a vaccine is at hand and the world may begin at last to return to normal, the question must be raised as to how many of these dramatic changes to board and shareholder function will remain in place. Will we go back to our old human interactive ways? A number are suggesting that these changes have become the “new normal” and may be with us for years to come. This would be a big mistake for a number of reasons.

First, let’s examine the reimagined board meeting. It has been argued that a virtual board gathering has had a positive effect on board function. Meetings are more focused, easier to coordinate and, during the pandemic, more frequent than before. Perhaps we should move permanently to this model, or at least a hybrid, some have suggested. It is certainly true that as no one wants to sit in front of a computer longer than they have to, meetings do seem more to the point. And not having to go through the agony of travel has made them more convenient. But something has clearly been lost in this approach.

Many important decisions and compromises are crafted in informal discussions among the board and management. They often serve to defuse the destructive acrimony that sometimes arises during heated board debate.

Also, the nuance of human experience and mood can be lost. The offhand gesture or eye roll, which is so helpful to evaluating behavior, is almost impossible to witness on a video conference.

I am not arguing for the complete elimination of the video board gathering. Sometimes it does add value, particularly on time-sensitive matters. But the wholesale replacement of our traditional in-person deliberations would reduce board effectiveness dramatically and should always remain the exception to the rule.

However, the most significant change to traditional governance norms occasioned by the pandemic relates to the annual shareholders meeting. The advent of the completely virtual meeting has been the most significant change created by COVID. Many have welcomed the shift and argue for its survival even past the pandemic. This would be a serious error.

The annual meeting attended in person by the board has long been an important governance mechanism. Having an annually scheduled meeting of the shareholders with the board present, even if sparsely attended, serves an important purpose. The fact that once a year the directors must meet their makers, so to speak, fulfills a seminal accountability function.

The mere threat, even if rarely encountered, of being personally approached or questioned by actual shareholders creates a sense of responsibility for a director that a virtual meeting can never accomplish. That really is the whole point of an in-person encounter. (Imagine an elected political official who would only meet their constituents virtually.) I can certainly see an argument for a hybrid meeting where the board and management are available to the shareholders at some physical gathering, while others may simultaneously meet virtually with the group. This could expand investor participation significantly, while ensuring the potential physical contact so important to responsibility and accountability.

The challenge of the pandemic to board behavior has been significant. However, the changes made were born of necessity and not ultimate optimality. We as directors must keep this in mind as we navigate our way back to corporate normality.

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