Shareholder activism increasing pressure to provide better access to meetings.
Is it time for all shareholder meetings to go virtual? Legally that can’t happen yet, but there is a movement by shareholders and other interested parties to encourage the use of technology to increase shareholder meeting participation and improve communication between companies and investors.
The California State Teachers’ Retirement System (CalSTRS) and the Best Practices Working Group for Online Shareholder Participation in Annual Meetings issued a report this summer advocating the benefits of adopting online meeting technology for the annual general meetings of corporations. The working group, which involves leaders in business, labor, investing and governance, has the goal of ensuring that technology is used in ways that increase shareholder participation and voting, preserve shareholder rights and encourage engagement at annual meetings.
The group also hopes companies will consider adapting online technologies to help shareholders participate in meetings without having to incur the expense and inconvenience of travel.
A growing concern
Why all the fuss about virtual meetings now? A ‘virtual-only’ shareholder meeting requires shareholders to participate exclusively through the use of online technology, with no physical meeting happening simultaneously, while a ‘hybrid meeting’ allows some form of participation through online technology while an actual physical meeting is taking place. With shareholder activism growing each year, pressure to increase access to annual meetings is growing as well. Companies may need to look at holding some form of virtual meeting because shareholders have requested it. The working group’s report, ‘Guidelines for protecting and enhancing online shareholder participation in annual meetings’, offers a list of best practices to help them in that process.
‘We were just trying to come up with a best practices document that would address the situation that companies are in – with the technology being what it is and improving all the time, we can’t stick our heads in the sand and act as though virtual meetings are not going to happen,’ says CalSTRS corporate governance portfolio manager Janice Hester-Amey. ‘At the same time, we want to be sympathetic and responsive to the issues that shareholders have about being able to participate in these meetings.’
Hester-Amey notes that ‘there will be some shareholders who will look at this document and bring this up as a best practice with companies when they are engaging them… I certainly think that we [at CalSTRS] will.’ She predicts that some activist shareholders may also use the best practices list in evaluating companies.
Meeting of minds
Chuck Callan, senior vice president of regulatory affairs at Broadridge, says the list of best practices developed by the working group is designed to help companies develop their own policies around how they will handle virtual meetings. ‘Companies over the years have developed policies and procedures for their physical meetings,’ says Callan. ‘What this is saying is that they should have policies and procedures for their online meetings as well.’
Among the biggest issues for companies to address when handling virtual shareholder meetings are how questions from shareholders will be handled and what voting procedures will be enforced. The best practices list offers solutions.
Some companies may find that they benefit financially from the move to some form of virtual meeting. ‘There are a lot of companies that are small, but they are required by law to hold an annual meeting. They’ve held them for years but nobody has shown up, and they want to keep costs down,’ says Callan. ‘Those companies may want to transition to virtual meetings faster because no one is showing up, but they still have to go through the cost of booking a place to hold the physical meeting.’
Kier Gumbs, a partner at Covington & Burling and legal adviser for the best practice group, says: ‘Twenty-two states, including Delaware, Minnesota, Ohio, Pennsylvania and Texas, currently allow virtual-only shareholder meetings. Eleven states require a physical location for shareholder meetings but permit remote participation in such meetings via the internet.’
Gumbs notes that there are 18 states, including Georgia, Massachusetts, New Jersey, New York and Wisconsin, that do not allow companies incorporated in them to hold virtual-only or hybrid meetings, so companies do have to check the laws of their state before they act.
Best practices for online shareholder meetings
In order to ensure that online participation in shareholder meetings provides the same opportunity for dialogue among shareholders, management and directors that is possible at an exclusively in-person shareholder meeting, the Best Practices Working Group for Online Shareholder Participation in Annual Meetings recommends that companies:
· Adopt principles for online participation in shareholder meetings, just as they would for an in-person meeting.
· Publish those principles in a reasonable period of time in advance of the meeting.
· Establish procedures to validate online meeting participants as shareholders.
· Establish reasonable procedures to allow anyone to attend an online annual meeting and to determine whether non-shareholders may be permitted to participate on a view/listen-only basis.
· Establish procedures for shareholders to vote remotely and to have such votes properly recorded.
· Establish reasonable guidelines for questions from shareholders intending to participate online in shareholder meetings. Specific considerations when establishing guidelines for questions include: procedures to post all questions received in advance of the meeting and to allow investors to communicate before the meeting to indicate that they wish to ask a question or make a statement; specific and reasonable time guidelines for questions asked of management (for example, five minutes for shareholders presenting proposals and two minutes for general questions); and specific and reasonable guidelines for the display of questions and answers.
Some shareholders have expressed concerns regarding the potential for manipulation by companies with respect to the way they might filter, organize, group and display questions and answers. Acceptable practices for addressing these concerns could include: displaying all reasonable questions asked during a meeting (questions that are malicious or frivolous in nature can be excluded at the discretion of the company, as can duplicative questions); organizing and answering questions based on groupings of related questions; organizing and answering questions based on the time each question is submitted – questions to be displayed and taken in order, as they are received; in a hybrid meeting, alternating questions between in-person, telephone and internet attendees; establishing reasonable procedures for shareholders to ask questions via telephone; establishing procedures for questions received during the meeting but not answered during the meeting; establishing procedures to allow a shareholder to revoke a question; and establishing procedures for posting all questions and answers after the meeting, including the specifics related to each question.
· Arrange for a shareholder to present his or her shareholder proposal in person or through a telephone or video connection, requiring a reasonable amount of time for a shareholder to make such a request in advance of the meeting.
· Add disclosure in the proxy materials that provides notice of the type of meeting to be used next year.
· Archive the meeting on a publicly available website for a specific and reasonable period of time.
Source: Best Practices Working Group for Online Shareholder Participation in Annual Meetings, ‘Guidelines for protecting and enhancing online shareholder participation in annual meetings’.