Notes from the Broadridge Financial Solutions 2020 Virtual Annual Meeting

When you think of virtual shareholder meetings (VSMs), probably the first company that comes to mind is Broadridge Financial Solutions, Inc. Just as Al Gore didn’t invent the Internet, Broadridge didn’t invent the VSM, but they did create and develop the platform that became the most-used vehicle for companies to hold VSMs and hybrid shareholder meetings over the past ten years. As we all know, the timing of widespread shelter-in-place orders in the US started in mid-March and extended through Memorial Day – exactly the annual period we call “proxy season.” Companies scrambled en masse to switch their in-person annual meetings to VSMs and most turned to Broadridge. According to the company’s reported statistics, Broadridge hosted just under 1,500 VSMs in the first half of 2020, compared to 326, 285, and 236 VSMs in full-years 2019, 2018, and 2017, respectively.

Broadridge’s Business

Broadridge is a public company (NYSE: BR) with a market capitalization of over $16.5 billion. FY2019 revenues were north of $4.6 billion. If you were to come up with a basket of COVID stocks, you could make a case that Broadridge belongs in it. Since the low point of the stock markets during the pandemic (Mar. 23), Broadridge’s stock has been up 70.8%, while the S&P grew 59.5%, the Dow 57.9%, and Nasdaq 70.7%. For the same period, Amazon.com was up 63.8% and Procter & Gamble 67.0%. I’m not a stock analyst, but Broadridge’s stock performance during the pandemic seems pretty decent to me.

Broadridge’s VSM business was enough of a contributor to the company’s results in April, May and June that management even mentioned it on their fiscal Q4 2019 earnings call (Aug. 11). Here’s what CEO Timothy Gokey said on the call:

Broadridge reported an exceptional fourth quarter. Performance was driven by strong stock-record growth, increased demand for virtual shareholder meetings and elevated trading volumes… Broadridge's performance since the onset of the pandemic highlights the strength of our business model and the importance of what we do across Governance, Capital Markets, and Wealth and Investment Management… In Governance, we have ensured that annual meetings to take place and shareholder governance continue by keeping open the lines of communication and facilitating 1,500 virtual shareholder meetings…

I'm really pleased by the breadth of sales across our major growth opportunities. We're seeing a lot of demand for our next generation Governance products with strong sales of Virtual Shareholder Meetings and our Shareholder Rights Directive Solutions.

Then-CFO James Young (one of my college classmates) added:

We saw continued strong onboarding activity and meaningful sales of our virtual shareholder meeting solution…

Overall, the economic impact of the pandemic on [the Investor Communications Solutions business] was mixed. On the positive side, we saw strong demand for virtual shareholder meetings…

On their fiscal Q1 2020 earnings call (Oct. 30), management make this bullish statement about VSMs:

[D]emand for a virtual shareholder meeting solution remains very strong, keeping pace with momentum we saw at the end of last year… We provisioned well over 200 meetings in the quarter, nearly 5 times more than in the same period a year ago. Post-COVID, we expect most of these meetings will remain virtual. And thus, this revenue is likely to continue.

The company has also stated that it will continue to invest in developing the VSM platform. This week, they announced the roll-out of a "next generation" platform designed to address some of the meeting access issues that shareholders had in 2020 and enhance the functionality of the product for users during the meetings.

Human Impact of COVID-19 on Corporate Governance

Unfortunately, COVID-19 also touched the company in a tragic way. Six Broadridge employees and contractors at a Long Island processing center died of the disease earlier this year. This was a grim reminder that employees throughout every industry, including corporate governance, have been impacted by the global pandemic. We write and talk a lot about how boards are dealing with the pandemic, but this event wakes us up to the fact that there are essential workers in the corporate governance system who don’t have the option of working remotely and are risking their health to keep the proxies flowing.

The Meeting

Kick-Off and Announcements

Today’s annual meeting kicked off at 9:00 a.m. EST with Executive Chairman and former CEO Rich Daly making a few remarks about the virtues of VSMs, both during the pandemic and in general. Then came announcements about the director nominees in attendance (all ten), number of VSM attendees (93), and quorum (89%). They announced a phone number for verified shareholders to call in with questions during the Q&A period – something very few companies did this year – and said that the polls will close immediately after the one shareholder proposal is presented. (More on that later.)

Director Sighting

One of the criticisms of VSMs is that thus far, almost no companies have shown the whole board of directors on the screen, so VSMs tend to feel very impersonal. Broadridge actually tried to do it, even though their directors were in different locations. Six of the ten directors appeared on the screen in Zoom style boxes. (The other four were on via phone.) But like on all Zoom calls, everyone's boxes, except the person speaking, are very small, so reading body language and facial expressions is difficult. On the other hand, it’s not much better at in-person meetings since you’re not going to be sitting very close to the board members.

Items of Business

The corporate secretary continued with listing each management item to be voted on. (They didn’t formally “present” each one for a vote, but that probably doesn’t matter.) They then went to the one shareholder proposal on the ballot (on political contributions disclosures), bringing in the proponent, James McRitchie, by phone to present it. The corporate secretary said that if any technical issues arose, she had a copy of Mr. McRitchie’s prepared remarks and would read it out loud. I was able to hear Mr. McRitchie speak very clearly. He spoke for two to three minutes and was very cordial and professional.

“Votes cannot be cast after the Poles are closed!”

The company closed the polls immediately after Mr. McRitchie stopped speaking at 9:10 a.m. Mr. McRitchie raised this with me on LinkedIn:

Here's one for you. I just got off the virtual meeting of Broadridge Financial Solutions. Voting was cut off the second I concluded my presentation requesting better disclosure of political contributions. I submitted a question asking: "Why was voting concluded the second I finished presenting proposal #4, leaving no time for shareholders to vote?"

Their response was that it was a "good question" but it "goes to the mechanisms of what we're trying to do here." What kind of answer is that? Of course, the impact of leaving people no time to vote is to invalidate the purpose of presenting a proposal.

The SEC penalizes proponents if we don't present our proposal but presenting the proposal is an otherwise meaningless exercise if no one can vote or change their vote based on what is presented. People will listen to you, the man with plaid pants. Talk some sense into them. Why are so many people so complacent about things that make no sense?

Activist hedge fund manager Andrew Shapiro of Lawndale Capital Management added:

I hope you are effective at exposing this abuse to more people. It clearly illustrates that James McRitchie and others like him are not simple “gadflies” but true capitalist patriots.

Unfortunately, Jim and Andrew are going to be disappointed because I don’t have a good answer for why companies do this and more people don’t call it out. The fact is that most (almost all?) companies close the polls right after all items of business have been presented. At J&J, we gave shareholders another five minutes to vote or change their votes. Intel left the polls open until the end of the Q&A session, which is probably the “right” way to do it, but that is extremely rare from what I have seen at large companies. Another "right" way to do things is to solicit questions or comments after presenting each item of business, which I have seen a number of companies do.

I don’t think closing the polls right after the last proponent speaks rises to the level of “abuse” since there are no laws or rules on the timing of closing the polls to be abused (other than laws on announcing when the polls will close (e.g., DGCL §231(c)). But Jim and Andrew have a good point. Shouldn’t shareholders be able to vote after gathering all relevant information, some of which may come during the Q&A? Isn’t this kind of like having the presidential debates after election day?

The CEO fielded Jim’s question, but his answer wasn’t great. Most companies will tell you that there’s no need to keep the polls open because all of the large investors have already voted by the time the meeting starts, and rarely does any shareholder (retail or institutional) vote at the annual meeting. Veteran inspector of election Carl Hagberg, who has by his own estimate “overseen more than 50,000 meetings” since the mid-1960s, can only recall “THREE occasions where the outcomes were decided at the meeting itself – other than at official proxy fights, where both sides always ‘hide their cards’ until the day of the meeting.” The proxy voting people for the largest asset managers will tell you that voting at the meeting never crosses their minds, which is the reason why they don’t bother attending.

While I hate when someone’s answer to the question “Why do we do it this way?” is “Because everyone does it this way” or “Because we’ve always done it this way,” that’s all I’ve got. Sorry, guys!

Q&A and Voting Results

After the polls closed, the CEO gave a ten-minute presentation on the company’s business and financial results. Then the Q&A session started at 9:20 a.m. The company said that they would first answer questions that were submitted in advance of the meeting, then questions submitted during the meeting, and then open up the phone lines for call-ins. In the event they couldn't answer all questions, they’d respond within 24 hours by posting answers on the investor relations section of the company’s website. They then fielded the two questions that were submitted in advance and the two questions that came in during the meeting, including Mr. McRitchie’s question that I addressed above. No questions came in over the phone. So, the Q&A session wrapped up in just seven minutes.

The corporate secretary then reported the preliminary voting results:

• Director nominees: Each received at least 92% support

• Say on pay: 96% support

• Ratification of auditor appointment: 98%

• Shareholder proposal: 13% support

The Executive Chair came back on to adjourn the meeting at 9:30 a.m.

Stay Tuned

Some of you may have heard me refer to a multi-stakeholder group working on guidance for VSM practices. Our work is just about done, so you should be seeing a chunky report dropped by the end of the month. In the meantime, Happy Thanksgiving! I’ll be outside cooking up a smallish bird on our grill while downing a few Trappist ales. Oh, yeah, and watching “A Charlie Brown Thanksgiving.”