A few weeks back, I attended the virtual shareholder meetings (VSMs) of two very large peer companies, both of which have received recognition over the years for their corporate governance practices. Since their meetings were held on the same day, I was able to watch them in succession, focus on the similarities and differences, and decide which one was more effective.
Hatfield versus McCoy
Here is my side-by-side comparison of these two companies’ VSMs. (I have changed the names to protect the innocent.)
As a shareholder who attended both meetings, I thought Hatfield communicated with its audience much more effectively than did McCoy. As we can see from the side-by-side comparison, Hatfield made a concerted effort to replicate the in-person meeting experience, while McCoy largely went the minimalist route that the bulk of companies continue to take with their VSMs. But given both meetings were virtual, what made one more effective than the other? How did the different practices identified in the table impact the experience?
Seeing Is Believing
Seeing Hatfield’s CEO and corporate secretary speaking live on screen made their communications feel more human. Watching each Hatfield director stand when their name was called made these people more present. Hatfield also showed its entire executive team sitting in the room with the board, and we saw one of these executives stand and answer a question during the meeting. That added some spontaneity to the event. McCoy opted for still photos of the speakers and board members. There was no opportunity to see body language. In essence, Hatfield’s meeting was like a Zoom meeting, while McCoy’s was like a conference call. Neither was the same as meeting in person, but Hatfield’s was the next best thing.
I’ve spoken with many investors about VSMs, especially over the past three years. One of their biggest criticisms is that VSMs are faceless and cold with the primary cause being the audio-only format that well over 90% of companies have used. Just seeing someone on screen speaking in real time can make an investor feel like an actual human is in charge and confident enough to come out from behind the curtain. Attending the Hatfield and McCoy VSMs in succession and paying close attention to the vibe of each drove that home for me.
By far the number one complaint that investors have with VSMs relates to the Q&A session. Investors are concerned that companies may be “cherry picking” questions—answering the ones they find innocuous and avoiding the ones they would rather not answer. It’s very easy for a company to do this on a VSM, whether there’s live video footage or not. A VSM attendee can’t see how many people with questions are in the queue and whether the company gets to all of them. The company could say there are none, and you would be none the wiser. Or they could just answer the ones they feel like answering, or have pre-written answers for, and disregard the rest, knowing that it’s impossible for a shareholder whose question gets ignored to make the other attendees aware that they were left hanging.
For companies that use the VSM format, this is a tough complaint to address. There’s no way to eliminate any and all doubt in an investor’s mind that every single question that came in before and during the meeting was answered. Some industry observers have suggested showing the entire flow of questions on the screen as they come in. But this could be fraught because of the potential for inappropriate comments and abusive language popping up in real-time, and investors generally acknowledge that the company needs to have some ability to screen that kind of stuff out. When a shareholder goes off the rails at an in-person meeting, the company can turn off the mic.
This is why it’s essential for companies to show its investors during the VSM Q&A session that they are trying to be as transparent as possible. One way Hatfield did this was by having all questions come in live by phone and letting each caller speak once their line was opened by the operator, like they do on talk radio. Based on the questions I heard, it didn’t seem like the company was screening the calls. (One caller opined that the entire accounting profession is a fraud!) The members of management answered the questions on the spot in a way that didn’t sound scripted. Some of those answers were less than satisfying, but that’s going to happen whether the meeting is in-person or virtual-only. Another way Hatfield tried to convey transparency was by stating in its proxy statement that they would post answers to any pertinent questions not addressed during the Q&A session on their website sometime after the meeting.
I’m not sure what companies can do beyond what Hatfield did to at least get the benefit of the doubt from investors that they addressed all relevant and appropriate questions that came in before and during their annual meetings. Hopefully companies will get creative and come up with additional ways to provide reasonable assurance of transparency.
Don’t Ghost Me!
I have been insisting to skeptical investors that the “good” companies—the ones that are well-respected and have strong track records of shareholder engagement—don’t go about cherry-picking questions to answer the easy ones and dodge the inconvenient ones. Sophisticated management teams understand the value of transparency. Unfortunately, I can no longer say that with such confidence. My experience with McCoy is why.
I asked two questions during McCoy’s annual meeting, typing in and submitting both in the question submission box on the VSM platform. I submitted the first one during the formal portion of the meeting and the second one at the beginning of the Q&A session. During the Q&A session, the CEO and corporate secretary read (or paraphrased) and answered a total of five questions. Some of the answers were pre-written composite answers to address multiple questions on the same or similar subject matters. They ended the Q&A session after 10 minutes without addressing either of my questions, which were business and governance-related questions that I felt had not been addressed in answers to earlier questions or during other parts of the meeting.
I rarely follow up with companies before writing and posting my blog posts about their VSMs; I just write about what I saw. This wasn’t the first time that I’ve asked a question at a VSM that the company didn’t answer. But in this instance, I was curious to know what happened to my two questions. Did they fall through the proverbial cracks? The entire event lasted 40 minutes, so running out of time wouldn’t be the reason. Hatfield answered questions well beyond the hour, and McCoy’s meetings have historically gone for a full hour. So, I reached out. The company got back to me explaining that they had answered both of my questions.
My first question asked for an update on how the company is addressing the shareholder proposal requesting a racial equity audit that received majority support last year. I noted that McCoy’s proxy statement said that management had hired a law firm to do it. I was hoping that they could provide a little bit more of an update at the meeting, given a year has gone by since the proposal had passed. Clearly, they either didn’t want to or didn’t have anything more to say since they made no mention of it during the Q&A.
Management responded to my post-meeting follow-up by acknowledging that I had cited the disclosure in the proxy statement and saying that they chose not to address it at the meeting because it was addressed in the proxy statement. They copied and pasted that disclosure for reference.
So, the answer to my question about what the company said in the proxy statement was to read back to me what the company said in the proxy statement. In my opinion, part of the purpose of the annual meeting Q&A is for shareholders to ask questions about what was in the proxy materials, since that’s what the company is giving you to decide how to vote. By taking the approach that disclosing something in the proxy materials means questions subsequently raised have been asked and answered and thus may be skipped over, McCoy left me feeling like they ghosted me.
My suggested approach would have been to read my question aloud, say “Thank you for your question,” and then say exactly what they said to me in response to my private follow-up—that my question was addressed on page XX the proxy statement, and that’s as much as they could or would say at this time. Or, if they wanted to say the same thing in different words, they could have respond with something like, “As you noted, we said in the proxy statement that the company has hired a respected law firm with extensive experience on DEI matters to conduct this important audit. While we can’t provide any specific updates at this time, we will report back to our shareholders after the work has been completed, which we anticipate will be before next year’s annual meeting.” The substance of that response would have been unsatisfying, but the act of reading the question and giving an answer (even if it’s a non-answer) would have left me feeling acknowledged. Instead, it left me wondering how many other valid questions had been left in the hopper.
My second question was about how McCoy decided on the respective names of the company they were spinning off and the legacy company. Those names had already been set in stone and unveiled with fanfare, but I was still curious about the thinking behind the decision because it was kind of a head-scratcher for me. In response to my follow-up, McCoy pointed out that they had said at the beginning of the Q&A that there were several questions that came in about the spin-off, but since the deal was in the SEC registration period, they were limited in what they could say because of securities laws, and information about the spin-off can be found on the company’s website.
My suggested approach would have been to read my question, say “Thank you for your question,” and then say something along the lines of, “We had many internal discussions on the names for the two companies, taking into consideration the nature of each company’s businesses, current brand equity of their respective products, intellectual property issues, costs, logistics and other factors. Ultimately, we decided on names that we believe are most appropriate for the two companies and will be strong and enduring. We encourage you to read more about this on our website.” Being a securities lawyer myself, I don’t think a statement like that on something that had already been announced and wasn’t going to change would impact the registration process or require a supplemental SEC filing. But more conservative securities lawyers may disagree and advise their clients not to take any chances and just stay mum, so I get it.
And I get that companies are sometimes going to give blanket answers to batches of questions on the same topic. But they have to be careful about how far they go with that. I’ve seen meetings where the general counsel or head of investor relations announced that they received a number of questions on how the company is dealing with climate change and then recited a prepared statement that talked about climate change in generalities. Given climate change is such a broad and complex area with many subcategories, can a blanket statement on climate change really respond to or preempt all questions asked? If that’s your company’s plan for how to handle anything that comes up at your annual meeting related to climate change or other big subjects, I urge you to reconsider. Why? It will say to your shareholders that you feel like you don’t have to address the topic in anything more than a cursory fashion and that’s probably how you view the topic in general (and how you talk about it with your board). The “just trust us” answer no longer flies. Of course, trying to answer every possible question on a vast topic like climate change would be a fool’s errand. But it’s not difficult to take some of them, especially the ones that you can answer without going into a long and technical discussion about Scope 3 emissions or ones where you can give a short answer and then point people to sections of your ESG report. And there is value in doing it that way. It will show that your CEO, or another executive called upon to answer, is well-versed in the subject.
The key words for companies to remember going into the Q&A are: “Thank you for your question.” A shareholder who goes through the trouble of attending the annual meeting and asking a question wants to at least be acknowledged. They want to know that they have been heard by the company. And other shareholders want to see that, too, even if they aren’t the ones asking the questions.
Transparency Breeds Trust
What this really comes down to is building trust. Transparency is part of what breeds trust. My argument to investors suspicious of corporate Q&A cherry picking was that the most admired and well-run companies can be trusted. They understand the value proposition. You can see it in how they conduct business and especially how they treat their customers. These companies strive to be the very best in terms of both profits and reputation.
Much to my disappointment, annual meeting season reminds me that corporate governance is not something that companies vie to be the best at, or even in the 75th percentile. Too many corporate executives treat corporate governance like Brenda and Eddie probably went through their high school art, music, gym, and health classes. Do the bare minimum to get the diploma or GED and not be forced to go to summer school. To me, that makes no sense. Not building trust on corporate governance can only result in undermining the trust you worked so hard to get elsewhere. Every corporate executive would agree that it’s important for your investors to trust you. Projecting transparency at the annual meeting is a small but easy way to help you achieve that.
Companies like to say, “We believe in good corporate governance and value questions and feedback we receive from our shareholders.” OK, then show it. If you want the benefit of the doubt, earn it. The annual meeting Q&A session is one place where you can pick up some easy points, or at least not lose them. Even if you give corporate-speak answers, you are confirming that you have heard your shareholders’ questions and are trying to address them to the extent possible. You may not be able to prove transparency to an absolute metaphysical certitude, but you can demonstrate that you are doing as much as you reasonably can, all things considered.