News & Insights

Directors Governance Center

April 5, 2017

Considerations Regarding Virtual Shareholder Meetings

As an increasing number of public companies opt to hold annual shareholder meetings remotely without a corresponding physical meeting, a recent New York Times piece by Gretchen Morgenson discusses some of the potential issues associated with this virtual-only approach to shareholder meetings.

With the increasing prevalence of technologically savvy investors, virtual shareholder meetings have found numerous corporate proponents due to the advantages these meetings offer by (i) reducing attendees time and expense incurred during travel to a physical meeting, (ii) affording greater access to a larger number of shareholders through uncapped capacity for attendance, and (iii) eliminating the logistical difficulties and cost of securing a large venue and preparing physical meeting materials for each in-person attendee.

Notwithstanding these potential benefits, virtual-only meetings have not been universally embraced by all investors. Ms. Morgenson notes that virtual meetings can cede far too much control to corporate managers during the sole event each year when they must look owners in the eye and listen to their views. Managers presiding at virtual-only confabs, critics say, can cherry-pick which shareholders questions to answer and prevent investors from communicating one on one with management.

The move by many companies toward a virtual-only meeting is seen by some as being inconsistent with the age-old tenet of governance that every shareholder should be allowed to speak at the annual meeting. Said Timothy Smith of Walden Asset Management, [t]hese are not managements meetings, they are the meetings of the owners of the company. . . [Virtual-only meetings give company management] tremendous power over controlling, censoring and really limiting the engagement of share owners with the board and management.

New York City Comptroller Scott Stringer is also among critics of the virtual-only meeting; his office, which oversees New York City pension funds, recently began to contact companies that held virtual-only meetings last year in an effort to deter the practice. Mr. Stringer has said that he will recommend that funds under his control vote against the election of all directors sitting on corporate governance committees at those companies that conduct virtual-only meetings, stating the following: [I]n this interconnected world, companies are using technological tools to whittle away at investors rights and hide from accountability. If boards shirk this responsibility, share owners should join us in holding them accountable.

Practically Speaking

Corporate governance committees and directors should structure their shareholder meetings, whether in-person or virtual-only, with a view toward transparency and enhanced shareholder participation. While the practice of a virtual-only meeting can, in some circumstances, create an opportunity for greater shareholder participation while lowering the costs and other burdens incurred by the corporation, directors and management teams should consider taking the following practical measures to ensure as smooth a transition as possible to a virtual-only meeting format:*Communicate in advance to the shareholder base the reasons and purpose for a transition toward a virtual-only meeting. This stated purpose should be one that encourages transparency and increased stakeholder engagement while seeking to realize the operational efficiencies that can result from a virtual-only meeting.

*Ensure that the technology utilized to host and broadcast the meeting is reliable so that participants can enjoy uninterrupted access to the meeting, including by testing the platform and publishing technological troubleshooting materials in advance.

*Limit the use of one-way communication devices or mechanisms (such as muting or other censoring tools) so that a shareholder who has the floor can present his or her message in substantially the same way he or she could at a live meeting.