A GROWING number of U.S. companies are holding their annual shareholder meetings exclusively online in spite of shareholder concerns that virtual-only meetings may undermine board accountability and exacerbate plunging retail voting rates.
Although they are uncommon, online-only annual meetings are not new. As Broc Romanek at TheCorporateCounsel.net points out, it was nine years ago that Inforte became the first U.S. company to conduct its annual meeting solely online.
Since then, a handful of other companies have opted to hold their meeting proceedings online only, including Herman Miller, Inc. (NASDAQ:MLHR), ICU Medical, Incorporated (NASDAQ:ICUI), Adaptec, Inc. (NASDAQ:ADPT) and CIBER, Inc. (NYSE:CBR).
However, it wasn’t until last year that shareholders were able to cast their votes and pose questions online during live meetings. Prior to that shareowners had to lodge their votes in advance of the meeting date. When Inforte did its online-only meeting in 2001, 97% of the shares were voted by fax before the meeting started.
Real-time voting offered by Broadridge and Wells Fargo
Intel Corp. (NASDAQ:INTC) became the first U.S. company to enable live shareowner voting online during its 2009 hybrid online and physical meeting. The semiconductor giant used a platform developed by Broadridge Financial Solutions Inc. (NYSE:BR) to validate shareowners and record their live votes.
Since then Broadridge itself and several smaller companies, including Warner Music Group Corp. (NYSE:WMG), and technology company Conexant Systems, Inc. (NASDAQ:CNXT), have used the Broadridge platform to hold virtual-only meetings.
And in the coming weeks several more companies are slated to replace their physical meetings with web-only ones. Medical technology company Illumina, Inc. (NASDAQ:ILMN), asset management company Artio Global Investors Inc. (NYSE:ART), electronic manufacturer Winland Electronics, Inc. (AMEX:WEX), and holding company PICO Holdings, Inc. (NASDAQ:PICO) all plan to go virtual-only this year.
Meanwhile, several other companies will be holding hybrid online and offline meetings with live Internet voting. They include electronics retailer Best Buy Co., Inc. (NYSE:BBY), utility American Water Works Co., Inc. (NYSE:AWK), and investment firm The Charles Schwab Corporation (NYSE:SCHW).
Interestingly, Schwab is the only company I’ve seen that is not using Broadridge for its live voting. The company is using a system developed by the stock transfer division of Wells Fargo & Company (NYSE:WFC), which requires shareholders who hold their stock in Street Name to obtain a legal proxy from their broker and then fax or email it to the transfer agent (not the friendliest method, for sure).
Enough to lure retail investors back, or bigger drop coming?
The emergence of virtual annual meetings comes at a time when many U.S. companies have seen a sharp drop in retail shareowner voting rates, largely due to a U.S. Securities and Exchange Commission (SEC) decision to allow companies to publish their annual meeting materials on the web instead of mailing printed copies to all shareholders.
The Notice & Access process (see prior articles), approved by the SEC in 2007, has resulted in a greater than 75% drop in voting by retail shareholders at meetings where it has been used. While many observers have argued that the change in the default delivery method has caused confusion among shareholders, my view is that retail investors don’t go online to participate because the experience is tedious and insipid.
Some observers believe virtual annual meetings could help to engage more retail investors in the annual meeting process. Getting out the retail vote has become a major concern this year after the SEC approved a New York Stock Exchange rule barring brokerages from casting uninstructed client votes in director elections.
However, based on what I’ve seen and experienced firsthand at virtual-only annual meetings, I’m thoroughly unconvinced that live voting will make a meaningful difference beyond some initial interest in the novelty. Broadridge and the transfer agents have a poor track record of providing good online user experiences. And until directors and executives are willing to interact online with shareholders before, during and after the meetings, investors really don’t have an incentive to get involved.
Indeed, there is a reasonable risk that virtual-only meetings could lead to fewer retail votes being cast. This is because shareowners who otherwise would vote in advance of the meeting date might now wait for the live meeting and then miss the opportunity to vote for any number of reasons, such as not being able to connect to the meeting during work hours, which typically is when meetings are held.
It’s noteworthy that most of the companies opting for online-only meetings thus far have been fairly closely held by insiders and a handful of big institutional investors, who typically always vote their shares. There are few potential downsides to these companies if retail investors fail to vote.
Concerns raised over accountability
There is also a potential reputation risk to boards and executives if shareholders perceive that a company is moving to a virtual-only meeting to avoid being confronted by shareowners on important governance issues.
As reported by James McRitchie on CorpGov.net, Intel Corp. decided to cancel plans to hold a virtual-only annual meeting this year after shareholders filed a proposal urging a continuation of physical stockholder meetings. The proponents worry that eliminating the physical meeting will lead to a “lack of accountability of the Board and top management if there is no physical meeting with in-person interaction.” The company will now hold a hybrid online and physical meeting May 11.
The United States Proxy Exchange (USPX), a non-government organization that champions shareowner rights, plans to hold a conference later this year to discuss issues around virtual meetings.
In a news release following Intel’s decision, USPX said that while it believes virtual meetings can improve shareholder participation, it is concerned that the technology could hinder shareowners from exercising their rights and reduce meaningful interaction with directors, executives and other shareowners.
The debate around virtual-only meetings is only just getting started. Most of the companies moving to them are doing so because they don’t see value in having a shareowner meeting at all if only a few people show up. They’re out to do the bare minimum they can get away with. A few forward-thinking IROs and corporate secretaries, however, see virtual meetings as a way to involve more people in the governance process. Ultimately, though, it’s not the technology that will change things, but the willingness of directors and senior executives to get involved and muck it up with the unwashed shareholder masses.