It should come as no surprise that, in light of the COVID-19 pandemic, the number of virtually shareholder meetings this proxy season has jumped—off the page. But will this year’s broad experience leave companies wanting more? And will investor groups, which have tended to be skeptical of the virtual-only format, begin to view VSMs more favorably?
Broadridge reports that it hosted 860 VSMs on its platform for the period January 1 through May 22, 2020. By comparison, it hosted only 125 VSMs during the same period in 2019. What’s more, not included in the data analysis are over 500 VSMs that were hosted during the subsequent four-day period from May 26, 2020 to May 29, 2020. Broadridge attributes the increase primarily to the social distancing requirements arising out of the pandemic, as well as the relaxation of some regulatory requirements and prohibitions.
Broadridge notes that shareholder participation in these VSMs overall exceeded recent levels of participation in physical meetings. The average attendance during this period was 59 shareholders and guests, and the average meeting duration was 22 minutes.
Broadridge permits shareholders to vote at the meeting, to submit questions to management during the meeting and, if companies elect, to also submit questions in advance of the shareholder meetings. The average number of shareholders voting at the meeting was only four, with the highest being 178. The average number of questions from shareholders was six, with the highest number at 316.
Broadridge also permits proponents of shareholder proposals to present those with a “live voice.” During the period, there were one or more shareholder proposals submitted for votes at 132 meetings, over 80% of which were presented by the proponent “live” over the telephone. Alternatively, the proponent’s pre-recorded message was played or a company official read the proposal aloud on behalf of the proponent.
It’s an open question whether the experience this year with the VSM model will lead to more post-pandemic use of the virtual-only format in the future. Before the pandemic struck, investor groups had expressed concerns that virtual-only meetings could be used to “silence dissenting shareholders” and insulate management and the board from criticism. For example, although ISS does not have a policy to recommend votes against companies that hold virtual-only meetings, it has nevertheless encouraged boards to commit post-pandemic “to return to in-person or ‘hybrid’ meetings (or to put that matter to shareholders to decide) as soon as practicable.” (See this PubCo post.) The Council of Institutional Investors has historically, “been skeptical about replacement of in-person shareholder meetings with purely virtual meetings.” While CII recognized the imperative to hold meetings virtually this season, it also expressed the hope that companies “will make it clear that this decision is a one-off, tailored for current circumstances.”
Now, is it possible that data showing an increase in shareholder participation with the VSM format might lead investor groups and proxy advisory firms to look more favorably upon VSMs? There’s not much evidence of that yet. In a letter to the Chair of the SEC’s Investor Advisory Committee, CII was mildly complimentary of the practices followed by a few companies for virtual participation in meetings, but urged other companies to comply with the best practices outlined in CII’s 2017 “Build a Better Meeting” and in a 2018 white paper by the Best Practice Committee for Shareowner Participation in Virtual Shareholder Meetings, sponsored by Broadridge. However, on the whole, based on anecdotal evidence, CII expressed its concern “that too often, virtual meeting practices may be falling short.” Problems identified by CII included:
- Shareholders having difficulty logging in to meetings, including problems with non-working control numbers.
- Shareholders being unable to ask questions at the meeting if the shareholder had voted in advance by proxy, including one platform that required, to ask a question, that the beneficial owner obtain a legal proxy from the record holder, requiring the record holder to withdraw its vote if already voted.
- Shareholders being unable to ask questions during the meeting at all, in some cases, unless the questions were submitted in writing in advance, which “interferes with the potential for interplay between meeting content and questions or comments.”
- Lack of transparency regarding shareholder questions, allowing the company to cherry-pick the easiest questions to answer, an issue particularly if the Q&A is time-limited.
- Conflicting channels for shareholder participation, with proponents of shareholder proposals required to be on a separate line not used for general shareholder Q&A.
- At least one company prohibiting a shareholder proponent from speaking on behalf of the proponent’s own proposal.