Some companies may never hold an annual shareholders’ meeting that is virtual, while other companies have opted to wave off the in-person annual meeting altogether in favor of a meeting in cyberspace. Unlike webcasts, which are available to the public, the virtual shareholder meeting (VSM) offers the ability to verify attendance and provides an interactive element that allows for real-time voting in a secure environment. The VSM also enables two-way engagement, allowing shareholders to ask questions of corporate officers and directors.
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Since Intel became the first company, on May 20, 2009, to add a virtual component to its shareholders’ meeting using the Broadridge service, several other companies have followed suit, despite criticism lodged by some shareholder advocates. Those electing to use electronic platforms created by Broadridge Financial Solutions, Wells Fargo Shareowner Services or Computershare now include some of the largest names in business.
Best Buy, the electronics retailer, was a natural for being an early adopter of the technology. In addition to its in-person annual shareholder meeting, typically held in Best Buy’s hometown of Richfield, Minn., the company streams its annual meeting on its website and to television screens in the employee cafeteria. For the last two years, Best Buy has conducted a VSM as well.
“Best Buy has always had a culture of transparency and uses technology to demystify the meeting for our employees and shareholders. After all, we sell technology,” says Lisa Beth Lentini, senior corporate counsel at Best Buy. “The truth of the matter is virtual makes a lot of sense.” Proponents of the virtual format reason that it provides easier and cheaper access to shareholders who may not want to incur the time and cost of traveling to the in-person meeting. In addition to making the location of a meeting agnostic, there is a real cost savings to corporations that may forego the expense of accommodating large numbers of people, and distribute investor information electronically rather than mailing printed materials.
Robert Schifellite, corporate senior vice president of Investor Communication Solutions at Broadridge, says adoption of new shareholder communications platforms often begins in the office of the corporate secretary, which will typically consult with investor relations. “Once there is buy-in from the corporate secretary and IR, the CEO and CFO need to be educated about the technology— and then, last but not least, the board. Many directors are also eager to learn more,” he says.
Even stock exchanges are exploring this new solution. Janet McGinness, senior vice president and corporate secretary at NYSE Euronext, reports that the exchange first used the virtual platform in addition to the in-person annual meeting in April 2010. When considering whether to add the virtual component, says McGinness, “We asked ourselves what it would say about us as a company to use this new technology to engage shareholders. We decided it was important to leverage all available means of communications, including nontraditional ways to reach shareholders, in the ways that they communicate with each other and the company.”
She continues: “We are a global company, and we acknowledge that it’s difficult for some people to travel to New York City to engage in what is the most significant single event for shareholders. We’ve had a pretty good result.” Once senior management signed off on the decision to offer the meeting virtually, she adds, “we took the proposal to the our nominating and governance committee and they approved it, and then it was supported and approved by the board.” Whether the NYSE continues to offer a virtual component will likely be reviewed after its pending deal with Deutsche Börse AG is completed.
Critics of virtual meetings argue that unlike the open live meeting, VSMs put an electronic wall between the corporation and shareholders. But proponents point out that attendance at traditional face-to-face annual shareholder meetings is relatively low. The exceptions are corporations such as Wal-Mart and Berkshire Hathaway, where the annual meeting has become an extravaganza, attracting tens of thousands of shareholders. For most other companies, however, providing a new, low-cost way for shareholders to attend and interact with management has the potential to increase participation and reduce costs associated with meeting facilities, security and travel.
The appeal of the VSM is growing. Broadridge reports that the number of companies using its service—either virtual-only or in a hybrid format—has grown each year since its inception in 2009. Four public companies hosted virtual meetings in 2009, 28 companies in 2010 and 39 in 2011. More than half of the virtual meetings held in 2011 were conducted only in cyberspace—an option currently allowable in 21 states.
Yet some investor advocates are concerned about the reduction of personal interaction with executives and directors during virtual meetings.
James McRitchie, an investor advocate who publishes CorpGov.net, has expressed support for hybrids. “Most of us favor the hybrid meeting,” wrote McRitchie in an email exchange on the issue. “Any ability for shareowners to ‘attend’ who would be unable to do so physically is a plus. However, we are concerned that such meetings will morph into virtual-only meetings.” McRitchie says more campaigns against the adoption of virtual-only meetings by smaller companies would have occurred last year, but other concerns forced the issue to the back burner.
One concern for McRitchie and others is the state standard. “We certainly are not satisfied with the minimal legal standards for virtual-only meetings,” McRitchie says. “For example, Delaware defines participation by shareowners as the ability to listen to the proceedings” (not the ability to send in questions or comments). That does not allow shareholders and investors the personal exchange provided in in-person forums.
Some shareholder advocates favor an electronic display of submitted questions so investors can endorse questions they want management to answer. Broadridge’s VSM platform can enable this, although it is up to the company to configure its meeting parameters, and that includes the ability to control how and when questions are asked and displayed. Seven of the virtual meetings done with Broadridge have also had shareholder forums on Broadridge’s Investor Network during the lead-up to the annual meeting. Some companies opt to display all questions along with their answers, while others choose to have corporate executives answer directly to the questioner or at the meeting itself.
Directors and most others understand that these developing technologies will likely offer benefits to companies and their shareholders, and they are not standing in the way of continued innovation. The Council for Institutional Investors’ policy states: “Companies incorporating virtual technology into their shareowner meeting should use it as a tool for broadening, not limiting, shareowner meeting participation. With this objective in mind, a virtual option, if used, should facilitate the opportunity for remote attendees to participate in the meeting to the same degree as in-person attendees.”
Says Steve Norman, former corporate secretary of American Express, “In many years of organizing shareholders’ meetings for American Express, I was frequently disappointed by the low attendance numbers of non-employee shareholders. Often only a handful of individual shareholders would attend, as many found physical attendance inconvenient. In contrast, the company’s quarterly earnings calls always had high attendance with robust information sharing and nationwide participation. These quarterly calls showed me that virtual meetings had clear advantages over physical meetings, at least where nationwide audiences are concerned.”
Who Has Held Virtual Meetings?
Virtual
Applied Minerals
Artio Global Investors
Broadridge Financial Solutions
Centerline Holding Co.
Conexant Systems
Graham Packaging Co.
Illumina
Location Based Technologies
Orion Marine Group
PICO Holdings
Symantec
TechTeam Global
Warner Music Group
Winland Electronics
W2007 Grace Acquisition I
Hybrid
American Water Works
Atlas Mining Co.
Best Buy
Dell
Herman Miller
Intel
Lectec
NVIDIA
NYSE Euronext
Pansoft
SH Group
Source: Inside Investor Relations
Fair Conduct For Virtual-Only Shareholders Meetings
- Enable sufficient time for users to login.
- Provide clear instructions for submitting questions online.
- Indicate how responses or other information will be provided.
- Provide future access to the meeting by archive.
Source: Council for Institutional Investors
Benefits of VSM
Corporate Issuers
- It is your choice: you choose the optimal shareholder meeting format for your company and shareholders—virtual, physical or hybrid.
- Increased participation: shareholders have a meaningful way to participate in the annual meeting.
- Reduced cost: there’s no need to rent a facility to conduct your meeting.
- Convenience: increased access to more shareholders, as the “location” is available on their computer.
Shareholders
- No cost to attend and participate.
- No additional software to install on their computer.
- Increased transparency: many more shareholders can attend the meeting and ask questions, further expanding their involvement in the corporate governance process in a meaningful way.
- The ability to participate and vote “live” during the meeting.
Source: Broadridge Financial Solutions
I’m afraid the “Fair Conduct For Virtual-Only Shareholders Meetings” section may lead readers to think CII endorses locking out shareowners through the use of virtual-only meetings. That is not the case. Their policies and indeed the policies of all shareowner groups I know of oppose such meetings.
Hybrid meetings are welcome and are embraced by all I know. However, be forewarned, companies that embrace virtual-only meetings will face disappointment and perhaps much more from shareowners.