Technology has infiltrated every area of our lives in many positive ways making it easier to communicate and inform a wide range of people in many different ways. Some uses, however, may not have as positive an impact.
One communication mode which is rapidly gaining followers is the use of “virtual” annual shareholder meetings which are for some companies taking the place of physical on-location annual events in which shareholders, if they so choose, can speak up and vote. The “jury” is out on how positive a trend this may be.
Gretchen Morgenson, Pulitzer Prize-winning journalist who covers world financial markets for The New York Times, comments in a recent post, “Companies can use technology to be open and transparent with their stakeholders, or they can deploy it to go underground.”
The issue is the growing number of corporations who are moving toward annual shareholder meetings that allow for online participation only. A change in Delaware law in 2000 opened the door to companies incorporated there to allow “virtual” meetings. Many companies, including two-thirds of the Fortune 500 are incorporated in Delaware. Shareholders can submit questions online from anywhere in the world and cast their vote online as well.
Broadridge Financial Solutions, the leading virtual meeting service used by many corporations, hosted only one virtual-only meeting in 2009. In 2015, it did 90 virtual-only meetings. Last year, the figures jumped to 154 on-line only meetings. Cathy Conlon, vice-president of strategic development at Broadridge said: “The numbers are looking pretty strong for proxy season,” and points to “the ability to have more transparency and the ability to have more shareholders participate.”
But, really…more transparency? In Broadridge’s own marketing materials they note: “Issuers can privately view and manage shareholder questions without broadcasting to other attendees.” In other words, the virtual meeting can allow management to avoid difficult shareholders and their uncomfortable questions.
And, in fact, many investors believe that they will not be heard; that virtual meetings will allow for ”cherry picking” of which questions and concerns managers of the company will allow to be addressed. Mike Mayo, a bank analyst at CLSA, sees the rise of virtual meetings as “a further marginalization of the shareholder.”
Ms. Morgenson mentions Scott M. Stringer, the comptroller of New York City who oversees the city pension funds with $170 billion in assets. Mr. Stringer aims to stop this growing trend. He comments, “If they continue down this path, the comptroller’s office will recommend the pensions vote against the election of all directors sitting on corporate governance committees at the companies.”… “It’s one of the great markers of American enterprise — whether you own one share or one million, you can speak at a company’s annual meeting.”
And Tom Braithwaite of the Financial Times noted, ”Companies should think hard about joining the motley crew who have gone virtual-only. Using technology to broaden access is well and good; using it to shut out shareholders is another.”
A proposed alternative is hybrid meetings, which allow on-line participation by investors who choose not to attend the physical shareholder meeting. The Council of Institutional Investors has urged companies using virtual meetings to do so only as a supplement to in-person gatherings.
Companies with ethical cultures promote transparency…with customers, employees AND investors. And I believe, as Scott Stringer does, that the in-person shareholder meeting, allowing any shareholder to attend and have the opportunity to ask questions, is not only a hallmark of our corporate shareholder heritage but is also an example of stakeholder transparency. That needs to be retained.