Last year saw a surge in the number of US public companies hosting virtual-only shareholder meetings, and despite encountering opposition from some shareholders, we anticipate this trend will persist.
This article offers a practical guide tailored to US companies contemplating the transition to virtual-only shareholder meetings, covering the decision-making process and providing insights on how to effectively implement such meetings.
Making The Switch
Virtual-only shareholder meetings offer significant cost reductions in the annual meeting process while enabling communication with a broader base of shareholders.
Advocates of these meetings argue that the time and expenses associated with traditional, in-person meetings—which often have low attendance and lack substantive discussions—outweigh the benefits.
However, opponents of virtual-only meetings contend that nothing can substitute for the opportunity for shareholders to interact face-to-face with a corporation’s directors and officers, allowing them to ‘look them in the eye’.
Critics also fear that corporations may opt for virtual-only meetings to evade addressing pointed or negative questions.
CORPORATIONS SHOULD STRUCTURE THE AGENDA OF ANY VIRTUAL MEETING TO BRING MATTERS TO A VOTE, CLOSE THE POLLS AND ADJOURN THE FORMAL PART OF THE MEETING AS QUICKLY AS POSSIBLE.
We believe that there is no one-size-fits-all approach to holding shareholder meetings.
Corporations must assess on a case-by-case basis whether an in-person, virtual-only, or hybrid format is most suitable given the circumstances.
For instance, corporations are likely to opt for in-person meetings during contested situations due to the heightened complexity, necessity for discussion, larger number of votes expected to be cast during the meeting, and increased likelihood of requiring an adjournment.
Additionally, corporations with a history of high in-person attendance may encounter investor backlash if they suddenly transition to a virtual-only format.
Given the substantial number of US companies that held virtual-only shareholder meetings in 2017, we believe that 2018 could serve as a crucial year for the future of virtual-only meetings in the US.
This year will reveal the extent to which investors express their dissatisfaction by voting against directors who authorized virtual-only meetings.
Consequently, many US companies contemplating virtual-only meetings may postpone their decision until 2019 to observe how investors react during this year.
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Statutory Requirements And Organisational Documents
In states where virtual-only shareholder meetings are permitted, corporations must carefully review statutory requirements to ensure compliance.
Additionally, corporations need to verify that their organizational documents allow for virtual-only meetings, as some bylaws may mandate a physical location and require amendments to accommodate virtual-only meetings.
A crucial aspect of hosting a virtual-only shareholder meeting is enabling shareholders to securely vote online.
Therefore, for most public corporations, it may be impractical or even impossible to conduct a virtual-only meeting without the assistance of a third-party service provider.
An experienced service provider can offer a robust and usually cost-effective platform for hosting virtual-only meetings, which may be more feasible than developing the necessary technology and expertise in-house.
For privately-held companies, the need for a third-party service provider will depend on the specific circumstances.
Meeting Format: Audio-Only Or Video
The primary decision a corporation must make regarding a virtual-only meeting is whether it will be audio-only or include video.
An audio-only meeting, which lacks live video but may incorporate a contemporaneous slide presentation, closely resembles an earnings call, with the addition of shareholder authentication and voting through a secure website.
On the other hand, a meeting with live video typically mirrors an in-person shareholder meeting, except that no shareholders are physically present.
Thus far, corporations hosting virtual-only meetings have predominantly opted for audio-only formats.
This choice is often driven by cost and technological considerations, as holding an audio-only meeting is cheaper and simpler than broadcasting live video.
However, broadcasting live video could address some criticism regarding a corporation’s perceived lack of transparency, as it allows shareholders to observe the corporation’s representatives as they respond to shareholder inquiries during the meeting.
Safeguarding Against Technological Problems
Any company hosting a virtual-only shareholder meeting should have contingency plans in place to address potential technological failures, such as power or network outages.
These plans should account for scenarios ranging from brief outages, where the meeting can be promptly reconvened, to prolonged outages necessitating rescheduling the meeting for a later date.
To mitigate the risk of technological failures disrupting the meeting, corporations should structure the agenda to prioritize matters requiring a vote, close the polls, and adjourn the formal part of the meeting as swiftly as possible.
Once the formal proceedings are concluded, the corporation can address shareholder questions or proceed with management presentations.
Disruptions to these segments would not necessarily invalidate the shareholder vote or mandate reconvening the meeting.
The decision to reconvene will hinge on whether the formal business was completed and whether it is prudent, from a shareholder relations standpoint, to proceed with the remainder of the agenda, such as addressing shareholder inquiries.
Question and answer sessions offer shareholders the primary chance to interact directly with a company’s directors and officers.
Many shareholders consider this live format crucial for receiving candid, unscripted responses to their inquiries.
In virtual-only shareholder meetings, corporations have various choices for presenting shareholder questions:
- For live questions via telephone, corporations can arrange the meeting akin to an earnings call, where an operator oversees a queue of shareholders asking questions via telephone using a provided dial-in number. This format closely resembles in-person meetings, and it is anticipated that many shareholders, particularly activist retail shareholders, would favor this option.
- Regarding live questions via text, virtual meeting platforms facilitated by third-party service providers enable shareholders to submit questions in text format during the meeting. Typically, these questions are not visible to other shareholders. Compared to the telephone alternative, shareholders might perceive this method as less effective for presenting potentially critical questions. Additionally, it grants the corporation some discretion in selecting which questions to address.
- Pre-Submitted Questions: Alternatively, corporations may mandate that shareholders submit all questions in advance, either through pre-recorded audio or video files or in written form. Some critics argue that this approach may yield less candid responses, as the corporation would prepare scripted responses before the meeting. However, corporations advocating for pre-submitted questions argue that a prepared response, which can be more thorough and comprehensive than impromptu remarks, offers shareholders greater utility without sacrificing transparency.
Unless a corporation opts to allow live questions via telephone, it will typically need to exercise some editorial control over the questions addressed by its directors and officers.
At the very least, the corporation and shareholders would aim to eliminate redundant questions and those that are off-topic or inappropriate.
However, certain shareholders are concerned that corporations may selectively choose favorable questions while downplaying, altering, or disregarding inquiries perceived as overly negative or aggressive.
BEFORE DECIDING WHETHER TO HOLD A VIRTUAL-ONLY MEETING, CORPORATIONS MAY WANT TO ENGAGE PRIVATELY WITH KEY SHAREHOLDERS TO GAUGE THEIR REACTION. SOME PROMINENT INVESTORS HAVE INDICATED THEY WILL VOTE AGAINST DIRECTORS WHO AUTHORISE VIRTUAL-ONLY MEETINGS. OTHER INSTITUTIONAL SHAREHOLDERS DO NOT SEEM TO VIEW VIRTUAL-ONLY MEETINGS AS A SIGNIFICANT ISSUE.
To address this concern, corporations can take measures to enhance transparency regarding their selection process for shareholder questions.
This may include committing to addressing all reasonable questions during the meeting or, in cases where the volume of questions is high, pledging to publish all inquiries on a dedicated website accessible to shareholders and subsequently providing responses post-meeting.
Shareholders of US public companies who meet specific ownership criteria can submit proposals for inclusion in a corporation’s proxy statement.
These proposals must be presented by either the proponent or their qualified representative at the shareholder meeting.
For corporations planning virtual-only shareholder meetings, it is essential to determine how shareholders can present their proposals. Options include:
1. Offering a dedicated dial-in number for the shareholder or their designated representative to speak.
2. Allowing proponents to submit an audio or video recording of their presentation to be played by the corporation during the meeting.
3. Appoint a corporation representative to read the proposal or an introduction to the proposal submitted in advance by the proponent.
In 2016, the majority of corporations preferred to provide a separate dial-in number for proponents.
Additionally, corporations should have a contingency plan in place to present the shareholder proposal on behalf of the proponent in case of any technical issues preventing them from presenting personally.
Before opting for a virtual-only meeting, corporations might consider engaging in private discussions with key shareholders to assess their sentiments.
Some notable investors have expressed intentions to vote against directors supporting virtual-only meetings, while others among institutional shareholders seem indifferent to this approach.
Once the decision to hold a virtual-only meeting is made, numerous determinations must be made beforehand regarding voting, shareholder inquiries, and shareholder proposals, as outlined earlier.
Corporations will tailor their choices on these matters based on their specific shareholder composition and past practices regarding shareholder meetings.
Irrespective of the outcome of these decisions, corporations should publicize their protocols for shareholder involvement in virtual-only meetings, mirroring the transparency typically provided for in-person meetings.
Thoughtful and detailed procedures may mitigate shareholders’ concerns about virtual-only meetings substituting for in-person gatherings.
Recap Of Key Issues
Before hosting a virtual-only meeting in the US, several considerations must be taken into account, including:
- Whether to engage with institutional shareholders prior to deciding on a virtual-only meeting.
- Potential consequences of holding a virtual-only meeting, such as significant ‘withhold’ or ‘against’ votes on directors.
- Whether to allow non-shareholder attendees like analysts, employees, or the media to observe the meeting.
- Structuring the meeting agenda to efficiently conclude formal business.
- Preparation of contingency plans for various technological failures, including network outages or issues with shareholder proponents presenting proposals.
- Availability and duration of a recording or transcript of the meeting post-event.
- Methods for shareholders to present proposals, such as through a designated dial-in number or pre-recorded statements.
- Procedures for shareholders to ask questions, whether in advance, via text, or during a ‘live’ session, and how to handle disruptive behavior.
- Selection process for which shareholder questions will be addressed, including managing duplicates or inappropriate inquiries.
- Ensuring compliance with record-keeping requirements for remote communication-based votes or actions.
- Inclusion of relevant information in proxy materials regarding the transition to a virtual-only shareholder meeting and whether to promote the availability of virtual attendance on other platforms, such as the corporation’s website.
In conclusion, transitioning from traditional in-person shareholder meetings to virtual-only formats demands thorough consideration and preparation involving various logistical and procedural complexities.
Engaging experienced legal counsel and third-party service providers can aid corporations in navigating these intricacies.
However, each corporation must assess its unique circumstances, including past meeting practices, shareholder engagement levels, and expectations for potential shareholder objections.
Furthermore, as virtual-only meetings gain traction, industry standards may evolve regarding handling pertinent issues outlined in this discussion.
Therefore, ongoing vigilance and adaptation to emerging best practices in corporate governance are essential for corporations and their advisors to ensure effective meeting procedures.