For most publicly traded companies, the Annual Report used to be a detailed document printed on high-quality paper with first-class graphics and photographs describing a company’s business and financial results. Today, it is often just a few pages attached to the Form 10-K, the yearly report required by the Securities and Exchange Commission for companies that meet certain requirements. The in-person Annual Meeting should be streamlined, too – into a partially or even entirely electronic meeting.
For decades, it was a legal requirement under Delaware corporate law to hold a live annual meeting. Then, about 15 years ago, under pressure from some corporations that saw these meetings as a waste of time and effort, Delaware, which is a leader in these matters because so many companies are incorporated there, decided that companies could hold meetings electronically, even by conference call.
All states require public companies to hold an annual shareholders meeting to elect the Board of Directors and transact other business that requires shareholder approval. Notice of the annual general meeting must be in writing and is subject to a minimum notice period that varies by state.
The first company to go virtual with its annual meeting was a small company called Inforte in 2001. Today, a growing number of companies are foregoing ballrooms, coffee and muffins and conducting their meetings virtually. Hewlett Packard, a pioneering Silicon Valley company that has had more than its share of governance, management, and business challenges, held an annual meeting over a video conferencing system in 2010 becoming the biggest company at the time to have done so. It went off without a hitch and saved the company substantial time and money.
According to Broadridge Financial, a leading provider of investor communications and technology-driven solutions to banks, broker-dealers, mutual funds and corporations, about 90 companies in the U.S. now hold entirely virtual annual meetings. During these webcasts, shareholders can ask questions and vote online.
The annual meeting is no longer the primary place to air shareholder concerns, as activists and even more, traditional equity investors have demonstrated. The Manhattan Institute issued a report this year concluding, among other things, that only three “corporate gadflies” were responsible for 70% of all shareholder proposals in 2014.
Some companies host Annual Meetings that are more “events” than “meetings.” Warren Buffett’s Berkshire Hathaway sets the standard for these corporate celebrations. This year, the three-day event had numerous exhibits, a road race, various receptions and meals and, of course, the “annual meeting” where the highlight was several prominent journalists selecting questions for Warren Buffet that were previously sent in by shareholders. Not even at this extravaganza did every shareholder’s questions get answered. Walmart has also elevated its Annual Meeting to the level of an “event.” What do Will Smith, Taylor Swift, Ben Stiller, Miley Cyrus, Mariah Carey, and Tom Cruise have in common? They have all participated in Walmart shareholder meetings, as the company has used celebrities to try to improve its image.
Shareholder meetings typically provide little new information. The Security and Exchange Commission’s enactment of Regulation FD in 2000 effectively banned companies from selectively releasing material nonpublic information. To remain in compliance with this mandate, companies generally release information publicly or, if non-public information is released inadvertently in a limited way, must follow up with a public filing disclosing such information to all by the later of the opening of trading on the New York Stock Exchange or 24 hours.
Proponents of virtual meetings argue that watching a webcast is easier and cheaper than traveling to a physical meeting location and that it is less intimidating for a shareholder to type in a question and send it to a Chief Executive Officer than stand up at a meeting and ask the question. So, online meetings should attract more shareholders.
However, some shareholders and their advocates assert that online-only meetings limit shareholders’ face time with company executives and directors, hinder relationship-building and give companies greater control over the questions that are answered. Keeping the meeting entirely virtual can also help companies guard against embarrassing protests or awkward face-offs between management and shareholders.
Several years ago, Procter & Gamble amended its bylaws to allow virtual meetings, only to backtrack following objections from shareholders. After Symantec hosted an online-only meeting in 2010 and heard complaints, it switched to a “compromise” “hybrid” meeting which Intel and Microsoft have also hosted; this is where a physical event is held, but investors can also “attend” online.
Today, with stringent disclosure rules, extensive media outlets, and a more vocal shareholder community, the annual in-person meeting feels outdated. Do concerned shareholders wait for the Annual Meeting to ask hard questions or air their grievances? A virtual, or “hybrid” meeting” should satisfy the intent of an Annual Meeting; it should also make it easier for more shareholders to participate and at a lower cost for shareholders and companies.
Jonathan F. Foster
Founder & Managing Director – Current Capital Partners LLC