As spring arrives, so too does “Proxy Season” – the usual time for annual shareholder meetings. These Securities and Exchange Commission-mandated gatherings offer shareholders the opportunity to vote on various topics, including director nominees, and engage with company leaders. In the past, attending an annual meeting might be the only opportunity a shareholder would have to raise concerns directly with senior management. However, quarterly conference calls, industry conferences, and expectations that management teams (and sometimes directors) interact with shareholders more frequently have lessened the importance of the annual meeting. I have attended annual meetings of substantial public companies where no shareholders other than employees and directors were present. Virtually-based annual meetings offer companies the opportunity to boost participation rates and improve the way leaders receive and process shareholder feedback, all at a fraction of the cost of an in-person meeting.
Consider Walmart, a company known for its extravagant annual meetings, as an example. Each year, Walmart hosts a multi-day festival of events for its employees and shareholders at its Bud Walton Arena in Arkansas, offering a calendar of concerts, receptions, and meals. The celebration has even drawn nationally-acclaimed pop stars such as Miley Cyrus, Gwen Stefani, and Blake Shelton onto Walmart’s stage. The actual business of the annual meeting is confined to a few hours on the first day; barely a blip in the overall schedule. The extravagance of the event is meant to incentivize attendance and express gratitude to its employees and investors. However, because shareholders are responsible for arranging and paying for their travel to the event, participation among shareholders may not be as high as company leaders might hope. Moreover, the sheer scale of the meeting may preclude some shareholders from being able to air the questions they traveled to ask.
Of course, few companies are financially equipped to take their cues from Walmart’s playbook. Smaller companies would need to limit their annual celebrations substantially. It may be time for companies to cast off the expensive frills and inconveniences of the in-person annual meeting and move towards an entirely- or partially-virtual yearly meeting.
Digitally-based meetings have gained considerable popularity. Today, 30 states allow virtual-only meetings, 42 permit hybrid (virtual and in-person) gatherings, and only nine still require companies to hold in-person meetings. Of those, Delaware’s decision to go virtual is arguably the most important. The state’s pro-business courts, tax system, and laws tend to attract large businesses; according to the Delaware Division of Corporation, 50% of all publicly traded and 66% of Fortune 500 companies incorporate in Delaware – and are thus subject to its annual meeting requirements. In 2000, Delaware ruled that companies could hold their annual meetings electronically or via conference call. A 2017 survey conducted by Broadridge Financial Solutions found that 236 companies held virtual meetings in 2017. The majority of companies that hosted virtual meetings were small-cap (57%), although large-cap businesses did constitute 17% of virtual-only gatherings. Of those who conducted virtual annual meetings, 90% were virtual-only, and had no in-person component.
There are several reasons for the dramatic shift to digital meetings. Remote shareholders are spared the expense, time and inconvenience of traveling for the meeting, and are thus more likely to participate. A digital format also encourages shareholder participation by providing a secure platform for them to vote and submit their questions from afar electronically.
Another advantage of a virtual platform is that it limits the amount of time taken up by so-called “corporate gadflies” or investors who can monopolize time during annual meetings.
Another advantage of a virtual platform is that it limits the amount of time taken up by so-called “corporate gadflies” or investors who can monopolize time during annual meetings.
In 2014, the Manhattan Institute found that three people were responsible for 70% of shareholder proposals put forth by individual investors in Fortune 250 companies during the prior year. Lastly, hosting a virtual meeting is far less expensive than an in-person event.
There are clear advantages to having a virtual meeting – however, even this solution has its drawbacks. Some critics argue that having an annual meeting online takes away the town-hall transparency that shareholders value. As journalist Gretchen Morgenson wrote in a NYT article, “Managers presiding at virtual-only confabs […] can cherry-pick which shareholders’ questions to answer and prevent investors from communicating one on one with management.” Critics feel, Morgenson goes on to say, that a virtual gathering limits shareholder facetime with company executives, constrains relationship-building, and unfairly guards companies against awkward in-person confrontations.
Some companies have attempted to go digital only but reverted to in-person meetings after facing criticism from their shareholders, while others work to meld the two formats. Intel, for example, switched to a hybrid approach after facing pushback for its decision to hold an all-digital annual meeting in 2009 – although it is worth noting that the company shifted to an all-online gathering in 2016.
With a “hybrid” meeting, companies hold a smaller in-person event and maintain a virtual platform where investors can attend and vote. This format may be appealing to some companies, as it offers leaders a way to preserve the accessibility of a virtual meeting without compromising on a shareholder’s ability to engage with company leadership in person. A hybrid meeting is not as low cost as an all-online one, but allaying investor concerns may be worth the cost of hosting an in-person event. Even Walmart began webcasting certain parts of its annual meeting last year.
The in-person annual shareholders meeting is a tradition. However, it can inadvertently exclude shareholders and be expensive. It is often poorly attended. As businesses look to the future, I believe that boards and management teams should conduct their annual gathering at least partially online. This is an effective way to increase attendance and reduce cost. Eventually, I expect that annual meetings may well be held entirely online.
