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  • Doug Chia

Love (of Shareholder Democracy) in a Time of Corona

  • Drop the insistence that companies stick to in-person annual meetings, or have hybrid annual meetings, instead of virtual-only in the face of Covid-19.


  • Insist that any company moving to a virtual annual meeting this year that wasn't already planning on doing so (1) follow the best practices advocated by corporate governance experts; and (2) pledge to move back to the way it was once the risks of Covid-19 have abated.


I tweeted on March 8th encouraging public companies to think about virtual annual meetings this year given the "social distancing" advice of scientific experts. Over the past five days, we've seen many organizations cancel or indefinitely postpone gatherings of all sizes, from all of March Madness to my kids' lacrosse practices. While most annual shareholders meetings are very small and short, I believe this is the year to have a virtual-only annual meeting if you still have that option.


A few years ago, then Broadridge Chairman/CEO Rich Daly talked to members of The Conference Board ESG Center about virtual annual meetings. One selling point he made was safety, when the world has become a crazy place. Some attendees thought Daly's argument was a stretch and that he was over-zealously marketing his own company's product with scare tactics. Yes, we're constantly reading about disgruntled workers becoming mass shooters, but, do board members really need to worry about being assassinated at their annual meetings? Just bring in metal detectors to deal with that risk. I'm confident in saying that no one in the audience was thinking about viruses, quarantines, and social distancing. Now, we are there, and Daly's argument no longer sounds far-fetched.


The biggest friction point in the debate over virtual annual meetings is the potential disenfranchisement of shareholders, not with regards to actually casting votes, but rather with regards to making their opinions heard. There are those who believe shareholders have a fundamental right to look their elected board members in the eye at least once a year and give them direct, unfiltered feedback. Though there is little legal support for this, in a country that presents itself as the torch bearer for democracy and free speech throughout the world, it is a notion that feels right.


However, I have to push back hard on my friends in the corporate governance community who are advocating for hybrid annual meetings as the floor of how to mitigate the risks and fears of the spread of Covid-19. We always need to balance numerous factors and competing interests in any discussion about corporate governance, but I disagree that in this case a compromise solution is the right place to arrive. Principles of shareholder democracy and guarding against the disenfranchisement of dissenting shareholders (in particular ones with small holdings) are important. It is true that some boards and management teams go out of their way to make it as difficult as possible for any shareholder to leverage the power of shareholder proposals and proxy voting, or even attend an annual meeting, to voice a dissenting opinion. The horror stories are just astonishing, and those boards seriously undermine everything that corporate governance professionals stand for. It is not "fake news."


In a time of Covid-19—this dystopian movie in which all of us are extras—the ability to show up and confront the board in person at a shareholders meeting must take a back seat to the larger public health crisis that that is bigger than anything we've witnessed since Babe Ruth played for the Boston Red Sox. Social distancing is critical. What does social distancing mean? According to the CDC, it means "remaining out of congregate settings, avoiding mass gatherings, and maintaining distance (approximately 6 feet or 2 meters) from others when possible." If school classes (including my 10-person seminar) are being moved online, why not shareholders meetings? If people are being advised to avoid airports, trains, buses, commercial flights, and hotels, why should we be insisting directors travel to shareholders meeting locations?


Personally, if I were told I had to show up to some work meeting on Monday, I'd respectfully decline, or flat-out refuse if someone were insisting on it. It's not worth the risk to anyone involved. I canceled my family's trip to see a family member in Florida because they are over 80 years old and have several of the health issues that make them even more at risk of dying should they contract Covid-19. This virus has reached my own zip code. A few people who attended the Biogen leadership meeting in Boston and later tested positive for Covid-19 also attended a party in Princeton, NJ along with over 40 other guests, many of whom now are symptomatic, some of whom work at Princeton University. The party was on February 29, so who knows where in my immediate community the virus has spread?


I'm sorry, folks, but insisting or even giving people the option to attend an in-person shareholders meeting is just not worth it. I understand your strong concerns with virtual and even hybrid annual meetings. I've been involved in this debate from the start, had to consider it for my own company's annual meetings, and been a part of writing a model statue to permit them. You have a legitimate concern that some boards will seize this opportunity to further entrench themselves by moving to a virtual meeting this year and never going back. They will cite cost, convenience, access, and now safety, and be on the lookout for new technologies that allow them to place yet more barriers between us and them. The poster children of bad corporate governance won't ”let a good crisis go to waste."


What I suggest concerned shareholders do now is insist that any company that is moving to a virtual annual meeting this year that wasn't already planning on doing so (1) follow the best practices advocated by multi-stakeholder groups of corporate governance experts, such as Broadridge's Best Practices Committee for Shareowner Participation in Virtual Annual Meetings and Computershare; and (2) pledge to move back to the way they did it in prior years once the risks of Covid-19 spread have abated, or at least set the floor at a hybrid meeting. I know it's not going feel right to some, but to me, it's what we have to live with. We all have to do our part to minimize the spread of Covid-19, and in doing so, will all be making sacrifices and giving up certain liberties. That also goes for shareholder democracy.