Virtually Connecting With Shareholders Amid a Public Health Crisis
Ongoing concerns about Coronavirus Disease 2019 (COVID-19) are prompting many business leaders to cancel or postpone large events. Some states have banned events with more than 250 attendees. Political campaigns have cancelled rallies, the NBA suspended its entire season, and the United States recently placed a 30-day ban on travel from Europe to the States.
In this climate, corporate governance specialists and executive officers are working closely with directors to create contingency plans for annual shareholder meetings. Given the logistical challenges associated with adjourning or postponing meetings, many companies are considering a virtual format.
In recent years, over 1,400 annual meetings have been hosted on Broadridge’s web-based platform. Virtual shareholder meetings (VSMs) operate just like a traditional shareholder meeting except that management, board members, and shareholders don’t convene in a physical location. Shareholders are validated based on the credentials distributed with their proxy materials, and the same control number printed on the physical ballots and vote instruction forms is used for online voting prior to the meeting—physical or virtual.
The shift to virtual meetings in place of physical meetings should be comparatively easy because VSMs can be held on proven technologies already in widespread use. Last year, over 300 public companies provided virtual access to their annual shareholder meeting using Broadridge’s technology, and 92 percent of those companies used a virtual-only format.
Most boards start by considering these factors:
Do our bylaws allow us to hold a virtual meeting, and if not, what will it take to amend them?
Does our state of incorporation allow hybrid or virtual meetings? While 30 states allow virtual-only meetings and 12 states (plus the District of Columbia) allow hybrid meetings, your board may face restrictions or limitations in Alabama, Alaska, Arkansas, Georgia, Idaho, New Mexico, South Carolina, and South Dakota.
What will our shareholders think of our decision to go virtual?
Do we have any contentious proposals that will come up at our meeting? If so, how might the virtual format affect how the board handles these proposals or how shareholders receive them?
Boards should also consult with their corporate governance teams to understand where they are in the process—and what it will take to make the switch now:
Have our proxy materials been printed and distributed yet? If not, should we consider switching to a virtual meeting this year?
If we aren’t ready to make the switch, what’s our contingency plan? Many companies are scheduling a VSM as a back-up to their physical meeting and alerting shareholders that a change of venue may occur.
How are we going to communicate our plan to shareholders in the event that we do make a switch after original notifications have gone out? Companies are choosing among various options, including distributing notifications, creating recorded messages for shareholders, and posting information on the company website.
Both Institutional Shareholder Services (ISS) and Glass, Lewis & Co. have offered guidance on virtual meetings. Glass Lewis suggests that companies provide robust disclosure if they choose to go virtual. ISS’s analysis of virtual shareholder meetings concluded that:
Governance structures and practices are generally comparable across companies that conduct virtual meetings and those that conduct traditional meetings (held at a physical location).
Virtual meeting practices are more concentrated in the tech-savvy communication services and information technology sectors, although many sectors are represented in the mix of companies that conduct virtual meetings.
Some shareholder advocates worry that VSMs deter participation and reduce the board accountability that often comes with face-to-face interactions. However, many companies find that VSMs increase participation by giving more convenient access to a wider group of shareholders—even under normal circumstances.
Best practices suggest that boards work closely with shareholders to find ways to include more voices and perspectives at a virtual annual meeting. They may choose to communicate with shareholders in advance of the meeting, provide ways for them to submit questions, and establish rules to ensure that everyone can fully participate.
Depending on your meeting date, there may still be time to include virtual access as an option for shareholders. The switch can be fast—it only takes a few weeks.
Cathy Conlon is vice president and head of corporate issuer strategy and product development at Broadridge Financial Solutions.