Could Traditional Annual Meetings Go On-line Only?    

Article published on January 25, 2010
By Kristin Gribben

Companies are experimenting with holding their annual shareholder meetings entirely online, but the movement is attracting backlash from activist investors who say eliminating the in-person annual meeting will undermine corporate governance.

Intel announced last year that it planned to have a completely virtual meeting in 2010. But last week the company scrapped those plans after receiving a shareholder resolution and opposition from activists who were against the move.

Cary Klafter, Intel’s corporate secretary, says moving toward an online-only meeting made sense for the company. Only 85 investors attended the company’s 2009 annual meeting in Santa Clara, Calif. No new announcements are made at the meetings, shareholder voting is conducted beforehand, and moving online would save the company money, he says.

Shareholder activists worry that online-only meetings will strip their right to ask questions of board members and management, present their shareholder resolutions, file motions on the floor of the meeting, and protest against the company in a way that draws attention to their cause.

“The opportunity to look face-to-face and engage the board is absolutely essential to good governance,” says Laura Berry, executive director of the Interfaith Center on Corporate Responsibility. The group joined forces with Walden Asset Management to file a proposal against Intel’s online-only meeting, which has since been withdrawn. Berry says she supports companies that broadcast their annual meeting online but doesn’t want new technology to substitute for the physical meeting.

While activists might want the in-person meetings so that they can draw attention to a particular cause, it’s the protesting and antics that may induce more companies to move online with their meetings. In 2006, none of Home Depot’s independent directors showed up to the annual meeting amid concerns of investor outrage over then-CEO Bob Nardelli’s pay package. “There is no good purpose served for a few to dominate a meeting for the purpose of yelling insults and personal attacks that must simply be endured because responding would be useless,” Home Depot’s lead director Bonnie Hill told Agenda at the time. There were reports of individuals dressed in chicken suits carrying signs at the meeting.

Klafter says in Intel’s case the company had no intent to use the online meeting to draw down participation from the board. At a minimum the company was planning to have directors phone in to the online meeting, but the company was also considering having board members meet at company headquarters and be on camera. Klafter says sometimes shareholders will ask questions directed at a specific board member or chair of a committee and the company wanted that practice to continue during the Web meeting.

Online-only meetings have their genesis in a revision to Delaware’s corporate law that was made in 2000. This clarified that companies did not have to hold their annual meetings at a physical location open to investors.

Since then only a handful of companies have jumped on the virtual bandwagon, but more companies could be joining the ranks. Last year, Broadridge Financial Solutions unveiled new technology that enables companies to conduct online-only annual meetings. Intel was supposed to be Broadridge’s first client for the new software. Broadridge used the virtual technology to host its own online-only shareholder meeting in 2009. Many shareholder groups see Broadridge’s entry into this business as an encouragement for more companies to go entirely online.

Dominic Jones, author of the IR Web Report and an investor relations expert, says it may not be a smart move for companies to eliminate their in-person shareholder meetings. “Companies risk giving the impression that they don’t take corporate governance seriously,” Jones says. In-person annual meetings are “an acknowledgment of the important role of the shareowner in the company. That might seem old-fashioned, but making a big fuss over your shareowners will never be unfashionable,” he says.

There are few statistics on whether online meetings draw more interest from shareholders than in-person meetings, because so few companies have experimented with the option. Herman Miller’s last online meeting, on Oct. 15, spanned about 15 minutes and there weren’t any questions from shareholders, Jones says.

A Herman Miller spokesman says while that’s true, when the annual meeting was held at a physical location it was typically short and suffered from low attendance. “Part of our rationale for moving to [online meetings] is historically we’ve had very, very low attendance at our physical meeting,” says Jeff Stutz, vice president of investor relations at Herman Miller. In fact, Stutz says attendance for the online meeting is a little bit higher than it was when the company held annual meetings in person.

Shareholders concerned about this movement are planning to hold a conference this fall to create standards for virtual meetings that would help safeguard certain shareholder rights that are recognized during in-person annual meetings. Intel plans to participate in the conference.