Submitted by EveTahmincioglu on Mon, 07/09/2018 - 15:10

By Eve Tahmincioglu

The number of virtual-only shareholder meetings is on the rise, despite pushback by investors goading some companies to bring back in-person gatherings.

In the first six months of this year, publicly traded companies held 212 virtual meetings, up from 180 in the same period in 2017, according to Broadridge Financial Solutions, Inc. a global fintech leader.

Broadridge estimates the number will hit 300 by year’s end, a 27% rise from the previous year.

Annual meetings have been a fixture in corporate America and have given investors a chance to meet management and board directors face to face to address a host of issues impacting businesses. There is no law that says publicly traded firms have to hold in-person meetings, but the move to virtual-only meetings has been seen by many as undermining shareholder power and thus corporate democracy.

(Related article: Virtual Shareholder Meetings: Fortifying or Felling Corporate Democracy?)

Last year, New York City Comptroller Scott M. Stringer sent a letter to more than a dozen Standard & Poor’s 500 companies denouncing the rapid rise of the virtual-only meeting, saying he would “recommend that the New York City Pension Funds adopt a policy to vote against directors at companies that continue to hold ‘virtual-only’ meetings.”

Investors of all sizes have also pushed back, and there have been some recent successes in getting companies to rethink the online-only format.

Both Union Pacific Corp. and ConocoPhillips have announced they’re bringing back the in-person meeting.

Tim Smith, a director at Boston-based Walden Asset Management who worked with shareholders of ConocoPhillips to oppose to virtual-only meetings, told Bloomberg earlier this year that: “A virtual-only meeting is a totally disembodied event online — there’s no exchange or opportunity for investors to look the board in the eye.”

Aeisha Mastagni, a Portfolio Manager within the Corporate Governance Unit of the California State Teachers’ Retirement System (CalSTRS), sees the value in virtual meetings.

When CalSTRS has shareholder proposals they want to present, they can do that virtually if they choose. “There’s a cost benefit, not just to companies but in some cases to the shareholders as well,” she notes.

The problem is when shareholders want to meet management face to face.

“The hybrid meeting is the gold standard,” she stressed. “I think companies, especially a lot of companies engaged with shareholders would never go this route and have a virtual only meeting. Some of directors would never insulate themselves. They see it as part of their duty to engage with shareholders.”

Despite concerns, Broadridge recently facilitated its 1,000th online meeting, this one an all-virtual annual meeting for Balchem Corporation.

“Companies holding a VSM [virtual shareholder meeting] have shown increased shareholder participation at their annual meetings and this is particularly helpful for individuals who have time or economic constraints, and those who live geographically far from the meeting but would like to participate,” maintains Cathy Conlon, Broadridge vice president of issuer strategy.

In a release on the recent data, Broadridge shared a report from The Virtual Annual Shareowner Meetings Study Group that identified five principles and 12 best practices companies should consider when managing annual shareowner meetings. The report — Principles and Best Practices for Virtual Annual Shareowner Meetings — offered some questions leaders should ask before going virtual:

  • Do we have adequate technology to reach all shareowners, as well as management, who wish to participate?
  • Do we have a plan in place to give equal opportunities to both in-person and online participants (in the case of a hybrid meeting)?
  • Are we enabling meaningful engagement with shareowners?
  • Does our investing base broadly understand why we are holding the meeting virtually?
  • Is this virtual meeting in the best interests of the majority of our shareowners?
  • Do we have a plan in place to ensure that shareowners have opportunities to ask questions outside of the parameters of the virtual meeting?

One of the best practices missing from the report, says CalSTRS Mastagni. “If someone provides notice that they want to be in person, there should be a mechanism for them to do that.”

Kern McPherson, senior director of North American research for proxy advisory firm Glass, Lewis & Co., agrees.

“In our view, part of the responsibility of being a public company is being aware of your shareholders concerns,” he says. For companies who go all virtual, he adds, “we’re going to be looking for disclosure that they’ll be able to participate, ask questions and be given ample time to ask questions.”

While McPherson acknowledges there are lots of investors alarmed about the virtual meetings, he believes it’s a trend that’s here to stay. “Technology is becoming more prevalent and in many respects virtual meetings offer a lot of positives.” There’s the cost savings, he adds, and it also allows for companies to record everything in detail. But, he stresses, companies need to follow best practices.

“I would advise board members," he recommends, "that they engage throughout the year with large and small shareholders and share with them what the motivation is for going virtual, acknowledging the issue and having dialogue around it rather than springing it on them out of the blue.”