Notes from the Wells Fargo 2020 (Virtual) Annual Meeting
Updated: Jun 18, 2020
[UPDATED on 4/29 to reflect 100% director attendance.]
One impact of this year’s quarantines is the acceleration of what I have long thought was the inevitable shift from in-person to virtual-only annual shareholders meetings. Whenever a new game-changing technology comes along, as it gets better and cheaper there comes a tipping point after which you cannot reverse or even do much to hold back the wave of mass adoption. To borrow a saying from sports, “You can’t stop it; you can only hope to contain it.” While many shareholder advocates hope that companies forced to use virtual-only annual meetings this year will go back to the way it was next year, I'm afraid that the virtual-only annual meeting has reached the tipping point for mass adoption three to five years earlier than it otherwise would have, thanks to the COVID-19 quarantines.
A big upside of virtual annual meetings is that more shareholders can attend them, and one of those shareholders is me! Over the next few weeks, I'll be posting my notes from a number of virtual annual meetings of companies where I happen to own at least one share. Today, it was Wells Fargo & Company.
The meeting was audio-only. Audio-only is obviously not best practice, but this meeting was easy to hear and follow (agenda and rules of order were both posted). Audio-only may not have been the company's choice. I'm told that Broadridge at some point last month reached its capacity to take on additional virtual meetings with both audio and video. Obviously, Broadridge was not expecting a massive and sudden surge of requests for virtual annual meetings so late in the game. I'm sure they'll add capacity during the off-season for next year.
The meeting was originally going to take place in Salt Lake City, Utah with simultaneous audio streaming for listening-only (i.e., no ability to vote or ask questions remotely). The company had noted in its Proxy Statement that it may it may switch to virtual "due to developments regarding the coronavirus or COVID-19," in which case they would announce the change and provide instructions on how to attend, participate, and vote. They put out a notice of the change to virtual three weeks in advance of the meeting.
The virtual meeting room included a "Vote Here" button, and I was able to do so seamlessly.
There was also a field where you could type in questions. The questions that related to the items of business were read and answered before the legal portion of the meeting concluded, and the other types of questions were read and answered at the Q&A session that followed the business presentation. (More on that later.)
Over 1,500 people logged into the meeting. Of those, about 75% were shareholders and 25% non-shareholder guests. These numbers were announced at the outset of the meeting.
The entire meeting, including general Q&A lasted 90 minutes (10:00 to 11:30 a.m., Mountain Daylight Time).
Each shareholder proponent was allotted four minutes to present their proposal. This is actually generous. I'm used to seeing companies give proponents two or three minutes.
It appears that John Chevedden is actively participating in virtual meetings, as he called into the Wells Fargo meeting to present his shareholder proposal. It was good to hear him since I think it’s more meaningful when a proponent is actually there to speak to their own proposal instead of sending a representative to read a prepared statement.
The company allowed Arjuna Capital to present their proposal using a pre-recorded statement. I have never heard of this being done, so I was surprised, and my first thought was “Can they really do that?” Usually, if the proponent or a duly authorized representative is not at the meeting to move/present the proposal, it doesn't get voted on. Sometimes the proponent will ask the company in advance to move it at the meeting on their behalf, but the company is not obligated to grant the request. In this case, Wells Fargo probably did it out of courtesy and in the spirit of shareholder friendliness.
War Story: I actually faced this situation once when a shareholder proponent’s flight to attend our meeting got canceled. They called me right before the meeting began and asked if the company would move the proposal for them. I wasn't keen on the idea given how openly hostile this proponent had been when we tried to engage with them after they submitted the proposal, so I told them we'd see if another shareholder proponent in attendance would be willing to move it for them. We found one, which was good since I'm not sure what the answer would have been if I had to ask the chairman to do these folks a favor!
Q&A on Items of Business
There were a number of questions about the items of business, including about board searches for director candidates, employee pay gaps, and bylaw amendments.
One good question asked was why the board was putting up for election one director who is 71 years-old and one who is 72, when the board’s retirement age is 72. Let’s explore this, even though it's not directly related to the virtual meeting itself.
According to the company’s Corporate Governance Guidelines:
Non-management directors will not be nominated for a term that would begin after the director's 72nd birthday, although the Governance and Nominating Committee may recommend and the Board may approve nomination of a non-management director after the age of 72 if, due to special or unique circumstances, it is in the best interests of the Company and its stockholders that the director continue to be nominated for reelection to the Board.
The Proxy Statement says:
One of the Board’s director nominees, Richard B. Payne, Jr., will be age 72 at the time of the Company’s 2020 annual meeting. Consistent with our disclosure made at the time Mr. Payne was initially elected to the Board in October 2019, the Board, based on the recommendation of the [Governance and Nominating Committee], determined to nominate Mr. Payne for election at the 2020 annual meeting to serve as a director of the Company in light of the particular skills and experience that he brings to the Board. In determining that Mr. Payne’s nomination is in the best interests of the Company and its shareholders, the Board considered, among other factors, his substantial corporate and commercial banking experience, extensive knowledge of the bank regulatory environment for large financial institutions, and credit expertise. Effective March 1, 2020, Mr. Payne succeeded John D. Baker II as chair of the Credit Committee.
The Proxy Statement makes no mention of the other director, Donald M. James, serving past 72, but I guess they’ll cross that bridge when they come to it next year. At that point, James will have been on the board for 12 years.
As for Payne, the interesting thing is that he joined the board only five months ago, making today’s annual meeting the first time Payne was put up for election by the shareholders. So, they knew all along they’d be keeping him past the age-72 retirement age. Will there be any limit to his tenure?
I generally favor a board tenure limit over a mandatory retirement age as a board refreshment mechanism, so adding a 72 year-old to the board in and of itself doesn’t bother me. But, having a retirement age and then making exceptions is not a good look, unless you can convince me that the person is irreplaceable… and I don’t believe any independent director is irreplaceable. If you insist there is such a person on your board, to me it suggests that your board has a bigger problem that needs to be addressed.
Preliminary Voting Results
Director Nominees: 96-99% in favor
Say on Pay: 92% in favor
Ratification of Auditors: 90% in favor
Non-Binding Shareholder Approval of Bylaw Amendments: 3% in favor
Report on Incentive-Based Compensation and Risks of Material Losses: 23% in favor
Report on Global Median Pay Gap: 9% in favor
There were questions about a litany of things, including board oversight of human capital during the COVID-19 pandemic, dividends, climate change related business practices, executive compensation reductions, and board gender diversity.
One question that did not get answered during the meeting was my question, which I submitted shortly after the meeting began. I wanted to know how many of the director nominees were attending the meeting, either in person or by remote participation. I received a nice email from an Assistant Corporate Secretary the very next day that all of the director nominees were in attendance at the meeting. Apparently it was announced at the very outset of the webcast, but I must have logged in a minute late and missed it. [UPDATED at 4/29 at 5:40 P.M.]