Virtual-Only Annual Meetings – What Comes Next?
Updated: Jul 2, 2020
[UPDATE: A slightly different version of this piece was posted on the Harvard Law School Forum on Corporate Governance on July 2, 2020.]
I’ve always told people that the trend on virtual-only shareholders meeting (“VoSM”) adoption will only go one way: Up. It’s just a matter of how fast. As I said at the outset of this proxy season, the COVID-19 pandemic probably pushed us to the inevitable tipping point for mass adoption of VoSMs by three to five years. We’ll definitely see a drop-off when companies are no longer forced by quarantines to do it (hopefully by spring 2021), but it won’t be precipitous enough to bring us back to pre-pandemic levels because the number of companies that go back to in-person meetings (or go hybrid) will be partially offset by a new cohort of first-time VoSM adopters who heard about the relative ease, cost savings, and other upsides. Also keep in mind that some companies couldn’t do it this spring because their state of incorporation didn’t have permissive statutes or emergency exemptive relief. But, I’m pretty confident that by the end of this year, all 50 states will have amended their statutes to permit VoSMs, so that will open up a pool of potential first-time adopters.
The Grand Experiment
I was one of the earlier corporate governance pundits imploring companies to either switch to a VoSM immediately and not even give people the option to attend in person, or at least have VoSM as a ready-now backup plan should the exponential increase in casualties from COVID-19 peak in mid-April and not flatten until the beginning of June (i.e., exactly during peak annual meeting season), as the experts were saying. So, for this year, it was absolutely the right call for the companies that did it. It shows that virtual shareholders meeting technology was an important innovation. Broadridge first developed the virtual meeting platform as an attractive alternative or supplement to an in-person meeting for purposes of communications, cost-savings, and inclusiveness. It ended up being a godsend in a doomsday scenario.
After this year’s grand experiment, those who were afraid of VoSMs—companies and shareholders alike—can now see that their worst fears largely did not play out. Then again, it wasn’t the greatest thing since sliced bread. (Did you know that pre-sliced bread actually was a huge deal after it was introduced in 1928 and through the subsequent success of WONDER Bread?) As I and others have illustrated, there is still a lot that needs to happen for VoSMs to get close to replicating the in-person experience, which should be the ultimate aspiration.
Unintended Consequences and Surprises
When new things are proposed in Corporate Governance Land, you’ll hear warnings of “unintended consequences.” But, you’ll only see them emerge if the new things are actually used. VoSMs have been around for over a decade, and this year there was a catalyst for mass-adoption. As the use of VoSMs becomes more common, things may become topsy-turvy. Everyone will be looking for ways to use this tool to their advantage, and we might be surprised by how VoSMs get used and by whom.
This year, the hedge fund activists took it relatively easy. I’m not sure how much of it was out of respect for the challenges everyone is facing in the pandemic, but anyway… COVID-19 has created, and will continue to create, huge opportunities for activists. No doubt the predators will be using their stock-in-trade tactics… and looking for new ones. Is it too far-fetched to imagine a situation where a group of dissidents launches a proxy fight and demands that the company hold a VoSM or hybrid meeting, but the company insists on forcing people to travel to the annual meeting it plans to hold (for unexplained reasons) in Woodstock, Alabama? Remember universal proxies, which the SEC was ready to require in contested elections, but didn’t go through with it? The universal proxy was going to be the solution to the problem that you, as a shareholder, cannot vote for your preferred mix of director candidates from competing slates in a contested election unless you attend the meeting, where you can do that with a ballot. But, who needs to schlep to S-Town, when you can attend and vote from your office in Midtown? I think you see where I’m going with this.
According to our friends at Wachtell, Lipton, Rosen & Katz, currently there isn’t a commercial VoSM platform that could handle the extra complexity of a proxy contest, but at some point, there will be. And, as that gets developed, shiny new features will be added to VoSMs to make shareholders happy. HD video feeds for board, management, and shareholder participants are definitely in the near future. We’ve seen in-person shareholders meetings where dissidents were given generous amounts of time to make impassioned speeches quoting JFK and MLK. We may one day see a dissident addressing a heavily attended VoSM with each shareholder attendee having the ability to easily cast or change their votes on the spot without having to chase down a paper ballot.
Shape the Thing to Come
Pressure in the form of shareholder proposals and “vote no” campaigns to put an end to VoSMs won’t be successful because we’re not talking about something that can be put in the category of “shareholder rights” the way proxy access was, “shareholder democracy” like majority voting was, or “anti-takeover measures” the way classified boards were. Putting a stop to VoSMs will be most important to perennial shareholder proponents, but it won’t be a big enough concern for the major asset managers to join a movement to ban them. Pressure to improve the technology and implement The Best Practices will be a more effective strategy for the shareholder proponent crowd, realizing that helping to shape rather than stamp out VoSMs is a better use of their resources.
Conclusion (for now)
The massive market test that we went through this year due to the COVID-19 global pandemic accelerated the adoption trend that had already started and will teach us a lot about how to make the technology and practices for VoSMs better. Real-life examples of perverse outcomes that arguably disenfranchised shareholder may also help break the stalemate over long-standing structural issues in how equity securities are held and voted in this country.
So, am I pro-VoSM? It definitely sounds like I am. I called for it in the face of a pandemic and agree with predictions that it will become widespread, but that doesn’t mean I’m pro. Apologies for reciting two of the most overused, but so often applicable, corporate governance mantras: “One size does not fit all,” and “We’ll have to look at things on a case-by-case basis.” I’m hearing from some shareholders and companies that were pleasantly surprised by aspects of VoSMs this year, but also other shareholders and companies that were unhappy with the experience and hope to never have to go through it again. I’ve even heard of some companies for which VoSM was or would have been way more expensive than continuing to hold their annual meeting in-person. The jury will be out for a while.
As I’ve articulated above and over the past three months, I’ve got predictions and wishes. To use my sledgehammer once more, my basic prediction is that this thing is here to stay, so act accordingly. As far as wishes go, I want this tool to inject some usefulness into the annual meeting, and I believe it can. Built the right way, virtual meeting technology can result in better company communication, increased shareholder engagement, and more inclusive retail shareholder participation, not disenfranchisement and suppression of dissenting views.
I have spoken.