[UPDATE: A slightly different version of this post was published on the Harvard Law School Forum on Corporate Governance on July 2, 2020.]
So, my 10-part series on virtual-only shareholders meetings (“VoSMs”) has come to a close for this spring proxy season. Some overall thoughts:
Key Take-Aways
Companies did a good job. Given the very short time they had to deal with all of the legal (state laws, bylaws), regulatory (SEC, stock exchange), technology (VoSM platform, home tech), and logistical requirements (staffing, behind-the-scenes communication), we should recognize that companies on the whole did an admirable job. A lot of things had to go right. Here’s to the corporate secretaries who had to manage all of this! The primary responsibility of the corporate secretary—supporting the board to fulfill its fiduciary duties— had already ramped up starting in February (already the most grueling month for corporate secretaries), when companies began to monitor the spread of COVID-19. For some, the cadence of board meetings went from quarterly to weekly, and written board updates went from monthly to every other day. These are all things corporate secretaries must execute perfectly. Adding an unanticipated switch to a VoSM is asking them to go above and beyond above and beyond. (Yes, I’m biased.)
VoSM service providers deserve credit. Broadridge, Computershare, and others in the transfer agent business catch a lot of flak from everyone in the corporate governance community for many things. This year, these service providers really saved us in the face of a sudden and unforeseeable surge in demand starting at the beginning of March. According to an Intelligize report, by May 1, 65% of S&P 500 companies had held or announced plans to hold virtual meetings, with almost 90% of those companies doing it for the first time! Imagine if VoSM technology did not yet exist (Broadridge launched its platform in 2009), or if the few VoSM service providers out there didn’t have the collective capacity to meet this year’s needs? Either the board chairs, corporate secretaries, other essential personnel, and shareholder proponents would have had to mask-up and put themselves in harm’s way, or companies would have had to postpone their meetings until late summer or fall.
Getting into the meeting was a crapshoot. As I described in my posts, getting into a VoSM was smooth at some companies and not at others. Record holders at some companies had to take extra steps well in advance, and at other companies the beneficial holders had to. This year was a particularly bad one for this to happen since some companies’ notices for the switch to VoSM went out well after the original proxy materials were distributed, and the slow-down of the US Postal Service in some areas (including NYC) meant a lot of shareholders probably didn’t have much time to actually read the notice and get their act together. The inconsistency in what a shareholder needs to do to get into a VoSM needs to be fixed. It’s unfair to a number of parties, most importantly the shareholders.
Hearing is not seeing. In the past, some VoSMs were video, where you could actually see the chair, secretary, and other presenters speaking in real-time. This year, almost all meetings were audio-only. Audio-only is obviously a downgrade from video and an even bigger downgrade from in-person. Some attendees like to see body language or “size up” the directors at annual meetings (and make sure they’re not sleeping… literally). There’s no legal right to it, but that’s an opportunity shareholders have had for decades, and video can get you there. I’m told the VoSM service providers could only do audio-only this year because of the sudden surge in demand, so hopefully by next year they will have enough capacity for video.
Voting was easy. Voting on a virtual platform is actually easier for a shareholder than voting at an in-person annual meeting. I don’t know whether it created more work for people who had to collect, count, and inspect the votes, but from an attendee's perspective, being able to vote online, and change your vote every two minutes if you wanted to, was definitely easier than chasing down a paper ballot and golf pencil, filling it in, and returning it to the right person.
Asking questions was easy. Getting answers wasn’t. Having a question submission box on the screen makes it very easy to ask questions. You can take some time to wordsmith them before submitting, and it eliminates the nervousness that comes with stepping up to an open microphone and addressing an audience. More companies are giving shareholders the ability to ask questions in advance of the meeting. The problems were that you had no idea if you would get an answer to your question at the meeting or ever, you didn’t get to read or hear any of the other questions that were asked, and you couldn’t track down a company person to talk to face-to-face after the meeting if the Q&A session ended before they got to your question. Apparently, the company has no way of knowing who is asking the questions during VoSMs. Hard to believe, but true. For a shareholder, the downside is that the company doesn’t know how to find you to give you an answer. The upside is that you can ask as many questions as you want, even if the rules said each shareholder is limited to one or two questions.
Help was hard to find. Companies and service providers varied on how much attendee support they provided for problems shareholders may have had during the VoSMs. Some landing pages in the series of pages you had to click through had help-line numbers listed, while others didn’t. Some companies disclosed help-line numbers in their notices, but that meant if you needed help on the spot, you had to go find the notice you received weeks before.
“The Best Practices” versus “best practices”
The talk about best practices for VoSMs has already started and will evolve over the summer. Based on my experience in the corporate governance industry, there are two ways people use the term “best practices”:
“best practices.” This is the way the term is most frequently used, which is shorthand for the collection of practices generally followed by the companies in the Fortune 500 that make some affirmative effort to stay in the good graces of investors, proxy advisory firms, and others in the corporate governance community. The Commonsense Principles are pretty much this. In scholastic terms, it’s aspiring to a B to A-minus grade point average: respectable enough to report to your parents (unless you are Asian).
“The Best Practices.” This is what the term truly means, which is the gold standard package of corporate governance practices—the very best ("shareholder-friendly") and innovative out there. These are practices that go way further than what’s outlined the Commonsense Principles and other blue ribbon reports. Not that many companies aspire to this class of corporate governance practices, as most CEOs and boards subscribe to the “no good deed goes unpunished” school of thought.
What are/aren’t best practices will get sorted out by various industry groups over the next few months, and it’s safe to say that there will be competing sets of best practices… because that’s how we roll in Corporate Governance Land! For now, I’ll list The Best Practices I saw in my limited scouting of this season’s VoSMs. Personally, I hope some of these become best practices: [UPDATED to add a few things from the General Motors VoSM, which took place on June 16, 2020.]
Provide prominent, “plain English” instructions in the proxy materials on what a shareholder needs to do to attend, vote, and ask questions.
Give shareholders the ability to ask questions in advance of the meeting.
Make it easy and give as much time as possible for a shareholder to obtain in advance whatever separate control number, legal proxy, or other information they might need to enter the meeting.
Start the meeting at a reasonable time of day for people in all US time zones to attend. (I’d say not before 11:00 a.m. Eastern).
List a help-line number, or have an online chat feature, on every page the shareholder has to go through to get into the meeting and on the main meeting page.
Post the Annual Report, Proxy Statement, Rules of Order, and meeting Agenda on the main meeting page.
Have a prominent link on the main meeting page for record shareholders to access the Registered Shareholder List electronically.
Provide real-time closed captions for the hearing impaired. (Kudos to Alphabet for doing this.)
Keep the polls open until the end of the Q&A. (Kudos to Intel for doing this.)
Remind shareholders to include their name and email or phone number with the question they submit if they want to receive an answer.
Allow a shareholder proponent to call into the meeting to present their proposal or send a pre-recorded message to be played at the meeting.
Give each shareholder proponent a minimum of three minutes to present their proposal. (Kudos to WellsFargo, Berkshire Hathaway, and Intel for giving four or five minutes per proponent.)
Provide a detailed preliminary voting report (including the percentages of votes cast For and Against each item of business) at the end of the meeting, and post the final inspector of election report on your website. (Kudos to Intel and GM for doing both.)
Announce how many shareholders attended the meeting. (Kudos to WellsFargo and GM for doing this.)
Take the time at the meeting to answer all appropriate questions that are submitted. (I didn't attend or write about their meeting, but kudos to Citigroup for doing this.)
Allow shareholders to call into the Q&A session to ask questions live on-air via a dedicated phone line. (Kudos to GM for doing this.)
Post a written Q&A for all appropriate questions asked in advance of and during the meeting on your website after the meeting. (Kudos to Intel, Bristol-Myers, and GM for doing this.)
Aspire to Replicate an In-Person Meeting
BlackRock’s proxy statement included what I think is the essential VoSM question: “Will I be able to participate in the virtual Annual Meeting in the same way that I would be able to participate in an in-person annual meeting?” The aspiration for those planning and conducting VoSMs should be to replicate the shareholders’ experience at your in-person annual meetings to the extent reasonably possible. It’s never going to be exactly the same, but the technology is available to get pretty close. (Incorporating holographic and virtual reality technology into VoSMs may be just around the corner!) For some aspects of the meeting, you may even be able to make the virtual experience better for shareholders than at your in-person meetings without much extra cost or effort.
For People Who Love Metrics
Here are some random stats I compiled when attending these meetings that may be of interest to you (all of these exclude Berkshire’s meeting):
Companies ranged in 2019 revenues of $14.5 billion (Fortune 219) to $264.9 billion (Fortune 3).
Half made the decision to go virtual-only before printing their proxy statement.
Start times ranged from 8:00 a.m. EDT to 3:00 p.m. EDT.
Duration (including Q&A) ranged from 00:13 to 1:45.
Attendance (shareholders, not guests) ranged from 55 to 1,175.
Three of eight had extra procedures that either record or beneficial holders had to go through in advance to attend.
All had all or most of their directors on the line.
All had anywhere from one to ten shareholder proposals.
Seven of nine solicited questions in advance.
Three posted Q&A after the meeting (one kept it posted for only 10 days).
All, but one provided a preliminary voting report with details (i.e., beyond pass/fail).
This Was Fun!
Thanks for reading, sharing, and sending suggestions and feedback over the past few months. This little project helped keep my quarantine lockdown period interesting. I'll be writing more about what comes next for VoSMs. Be well and stay safe.