2021 Virtual Shareholder Annual Meetings

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Winthrop & Weinstine, P.A.

Many companies held virtual annual shareholder meetings in 2020.  This was principally the result of the COVID-19 pandemic and related state shutdowns or stay-at-home orders.  Typically, companies switched from the more traditional, in-person annual shareholder meeting to an audio-only or hybrid virtual meeting.  In many instances, the switch was done “on the fly” after notice of the annual meeting and the other proxy materials had been mailed to shareholders.  This was the best that could be accomplished given that most shutdown orders occurred in the middle of the 2020 spring proxy season.

Companies have time to prepare for the probability that their 2021 annual shareholder meeting will need to be a virtual or hybrid meeting.  Traditional, in-person annual meetings may not be permissible or socially acceptable in 2021 as COVID-19 persists.

Last year, many accommodations were made to allow companies to switch quickly to a virtual meeting, and shareholders and other participants in meetings generally were tolerant of technical and other glitches.  This year, however, companies should anticipate that shareholders and other participants will insist on more “user-friendly” meetings.  Investor expectations are likely to be more exacting.  Shareholders will be more demanding about process, notice, procedures and transparency.  These raised expectations should be welcomed and embraced by companies.  How shareholder meetings are conducted is a good governance indicator, and many improvements should be available this year and not be difficult to adopt.  And, this year, companies have time to plan!

Below is a list of factors to consider in connection with planning your 2021 virtual/hybrid shareholder meeting.  Start now, and use the extra time to avoid the hectic days (and nights) experienced in 2020.

  • Decide on the type of annual shareholder meeting to be held.  Each company will need to decide whether its annual meeting will be virtual-only, physical-only, or a hybrid.  A decision will also need to be made as to whether access will be audio-only or audio plus video.  Most virtual meetings held in 2020 were audio-only.  But technology advances in the last 12 months should make video a virtual meeting alternative.  Video can liven otherwise dull, unengaging meetings.  Video also helps eliminate the natural suspicion for what cannot be seen and can greatly enhance the shareholder experience.
  • Check technological improvements.  Many service providers have improved their offerings and made changes to the services available.  Most concerns voiced about 2020 virtual meetings focused on responding to shareholder questions and the inability of shareholders to ask questions of management, see or hear questions asked by others, and communicate with other shareholders during the meeting in real time.  Additional concerns were voiced as to how difficult it was for shareholders to access the meetings.  The “clunky” control number process was often forgotten or difficult to use for street name shareholders.  You can expect advancements in these areas.  The right to access shareholder meetings, the right to participate, and the right to vote are the most important aspects of a shareholder meeting.  Technological changes should help companies enhance the meeting and become more comfortable with virtual, video meetings.
  • Engage your technical services provider early.  The number of virtual/hybrid shareholder meetings increased from 248 in 2019 to 1,494 in first six months of 2020, a 502% increase.  As a result, many companies were not able to get their first choice for a shareholder meeting date and time when they scheduled their technical services provider.  It will make the process easier if, as early as possible, you choose your first, second and even third choices for a shareholder meeting date (and pay attention to any resulting changes required to the record date and other items) and then engage your technical services provider.
  • Focus on transparency and ease of use.  As noted above, the most common complaints about 2020 virtual meetings centered on the Q&A portion of the meetings.  Many criticized the process used by some companies to collect shareholder questions, questioned whether all questions received were answered, or accused companies of cherry-picking questions to answer or not having a clear or intuitive process to submit questions.  The key here is transparency and ease of use.  Have a clear process and rules of conduct, and communicate the process and rules before, during and after the meeting.  Consider posting appropriate questions on the meeting’s website and having the technical services provider collect questions and post answers on an ongoing basis.  If, because of time limits or other constraints, all appropriate questions are not answered in the meeting, post the questions and answers on the company’s website to which participants in the meeting have been directed before and during the meeting.  Rules of conduct should be reviewed and updated in a clear and concise manner.  The conduct rules should be disclosed in the proxy materials and made available on the meeting website. Usually, not much needs to be revised with the rules, and clear and concise rules can eliminate concerns and unwanted suspicion.
  • Check legal issues, state law and governing documents.  Each company needs to review applicable state law and its governing documents to determine if a virtual meeting is permissible and whether revisions to the governing documents are necessary.  Also, if you relied on state executive orders in 2020 to conduct a virtual/hybrid, make sure they are still in place and applicable, and check to see if the Securities Exchange Commission has updated its 2020 accommodative policies and rules.
  • Be cognizant of proxy advisory firm developments and updates.  Both Institutional Shareholder Services (ISS) and Glass Lewis issued accommodative policies during 2020 that made virtual meetings possible.  You should be aware of and comply with their recent updates.  Proxy advisory firm ISS expressed concern about virtual annual meetings in its 2021 policy changes related to annual meeting formats but continued its policy of supporting a company’s unilateral decisions to hold virtual-only meetings where the pandemic affects the company’s ability to hold an in-person meeting.  The most interesting statement in the updated policy is ISS’ confirmation that more will be expected of companies that hold virtual-only meetings in 2021:  “The ongoing pandemic presents a compelling rationale for restricting physical meetings, but ISS is concerned about the potential long-term impacts to shareholder rights if companies move to a virtual-only format.  However, ISS notes that evolving technological capabilities could provide a virtual meeting experience that sufficiently approximates the in-person meeting.” As stated above, companies will be pushed to enhance the shareholder experience.Glass Lewis’ recent publication removes the temporary exception to its policy on virtual shareholder meetings held between March 1, 2020 and June 30, 2020.  Glass Lewis renewed its standard policy, which provides that companies holding virtual-only format meetings should utilize robust disclosure in the proxy statement addressing the ability of shareholders to participate in the meeting.  Specifically, this includes efforts at attempting to approximate an in-person experience and focusing on disclosure of shareholders’ ability to ask questions at the meeting; procedures, if any, for posting appropriate questions received during the meeting and the company’s answers on its public website; as well as logistics for meeting access and technical support.  Companies that do not comply with Glass Lewis’ policy can expect a recommendation to vote against governance committee members.  Glass Lewis, however, did acknowledge that virtual meetings can be a useful complement to traditional, in-person shareholders meetings by expanding participation of shareholders who are unable to attend a meeting in person, but it also noted that virtual-only meetings have the potential to curb the ability of shareholders to meaningfully communicate with management.
  • Engage with shareholders.  All companies are different, as are their constituents.  Each company should consider the number of shareholders, shareholder proposals and votes at prior years’ meetings, and engage with shareholders to determine their preferences and concerns about the process and conduct of the annual shareholder meeting.  Each company should attempt to determine which features of the annual meeting are important to its shareholders.  Feedback is key and should be solicited and incorporated into the company’s plans.  A shareholder meeting can meet with shareholder expectations only if a company solicits input and figures out what is desired and how to deliver the best experience.
  • Prepare for technology glitches and establish backup plans.  Each company should prepare contingency plans for conducting the meeting.  Few major breakdowns occurred during 2020, but no company wants its annual meeting interrupted by a power or video failure or telephone outage with no plans on how to address the issue.  Companies should have a back-up plan.  Also, many companies set up a communication channel only for the company’s principal participants that is independent of the main meeting connections.  All too often, communication is necessary in the background to address issues that arise or determine who best to answer a shareholder question.
  • Have a dress rehearsal.  Hold a dress rehearsal that is an abbreviated form of the shareholder meeting that involves all participants from the company and people acting as shareholders.  A rehearsal will make everyone more comfortable and potentially uncover problems that can be solved before the meeting.
  • Review the 2018 Recommendations from The Best Practices Committee for Shareowner Participation in Virtual Annual Meetings.  In 2018, this Committee published a list of best practices for holding virtual annual meetings.  The list is helpful and likely will be updated soon.  But the best practices outlined remain instructive and relevant.

Moving from an in-person, traditional annual shareholder meeting to a virtual/hybrid shareholder meeting can be stressful and full of challenges, especially with the first virtual/hybrid meeting.  But demands for more robust and transparent meetings will likely arise in 2021, and companies should start planning now so that they can begin building upon their 2020 experiences and deliver an enjoyable and informative annual shareholder meeting.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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