The Pros and Cons of Virtual Shareholder Meetings

Virtual shareholder meetings (VSMs) are exactly as they sound – shareholder meetings conducted over the internet. And VSMs are growing in popularity. During 2017, 212 public companies -- ranging from United Natural Foods to Martha Stewart Living Omnimedia to Best Buy -- held a virtual annual meeting of stockholders, up from just four in 2009. Broadridge Financial Solutions Inc., which processes electronic voting for companies, expects to facilitate about 250 virtual annual meetings this year. Despite this relatively small number, there is a clear growth trend, up 98 percent since 2009. With the ever-growing adoption of technological practices, virtual meetings continue to gain momentum every year.

However, the VSM is not a one-size-fits-all approach. The choice to go virtual depends on a company’s shareholder base. Some companies have very low shareholder participation rates at their annual meetings, and some have sizeable retail investor bases from which it can be difficult to obtain a quorum based on an in-person event only. Others have concentrated institutional ownership that is not interested in sending representatives to annual meetings. Other factors include company size and industry. Large companies with broadly dispersed geographic ownership can broaden their participation by coupling an in person meeting with a VSM. Or small companies headquartered in remote areas can make it easy for individuals to attend the meeting from the convenience of their own offices. Technology companies in the business of internet, networking and mobility have found that the VSM is a natural fit for their corporate vision and culture.

A virtual meeting can take place in several formats: It can be strictly online, meaning audio only, or all video via a dedicated online meeting page where participants sign in live. Or it can be a hybrid format: The Company hosts the meeting at a physical location but adds the virtual component by enabling shareholders to participate online. Approximately 20% of virtual annual meetings held in 2017 were done in a hybrid format. Either way, unlike simply audio streaming an annual meeting, a virtual shareholder meeting enables participants to authenticate as a shareholder, vote electronically, ask questions, read welcome letters and speaker bios, and link to other shareholder materials. Meanwhile, the company can monitor key statistics like attendance totals and shares voted in real time.

There are a number of benefits and advantages to be considered when deciding whether a VSM is appropriate for your company:

• The Convenience Factor: Save time and money. For large S&P 500 companies, the cost to hold an annual meeting can exceed $100,000 when paying for things like the meeting site, food/drinks, hotel rooms and security. For smaller companies with fewer resources, the logistics can still be expensive, but planning the meeting can also be a major distraction and inconvenience for management andthe board.

• Shareholder Accessibility: Investing is far more global now. Virtual meetings enable shareholders to participate even if they cannot attend in person – which is usually the case. Plus, virtual meetings can expose companies to a broader audience of potential investors and create transparency around a company’s corporate governance process.

• Shareholder Engagement: In addition to the meeting site, issuers can set up an online shareholder’s forum on their web sites up to six months in advance of the VSM. This interactive tool lets shareholders submit questions to management prior to the annual meeting, review marketing materials, take surveys so the company can learn more about its investor base and provide feedback directly to management. Virtual meetings are a tool for broadening, not limiting, shareowner meeting participation.

• Sustainability: A company can show its concern for the environment by eliminating travel from their annual meeting and emphasizing electronic document review and voting.

There are criticisms about this format as well:

• Face-to-face Contact: Certain shareholders still prefer to address management and the board faceto-face when asking questions about the business.

• Selective Q&A: Some perceive that directors can dodge questions asked over the internet.

• Corporate Access: Many shareholders prefer the opportunity to shake hands with the board and management and mingle.

Along with growth of VSM adoption, there have been setbacks. Intel, Procter & Gamble, and Symantec reversed their plans to host VSMs last year due to investor objections, and New York City Pension Funds and CalSTRS have been vocal about their objections to VSMs.

Some important factors to consider when deciding to hold a virtual shareholder meeting:

• Widespread investor participation should be valued and encouraged equally amongst all investor participants, regardless of their caliber. This includes but is not limited to open engagement between investors and directors.

• The board needs to be fully aware of prospective investor reactions before deciding between a virtual-only, hybrid and in-person-only meeting.

• The format of the meeting and participation instructions should be clearly disclosed in the proxy statement prior to the meeting.

We recommend the VSM to companies that have had lightly attended shareholder meetings in the past or companies that would like added marketing value out of their shareholder meeting. Additionally, larger companies might may consider using this tool in conjunction with an in person meeting. As long as the meeting is accessible, transparent, and effectively managed, virtual shareholder meetings provide an opportunity for shareowners that cannot travel to easily attend and participate in the meeting. Online participation in VSMs presents an opportunity to improve corporate governance by increasing communications among shareholders, management and directors. Ultimately, the decision for or against a VSM should come down to which format fosters a more productive and engaged shareholder for the company.