The debate about virtual
The best – and the worst – of the 2010
It was a meeting about meetings, a webcast
about webcasts, and a lot of the questions were about questions. Very meta.
One day last summer, in a bunker-like conference room beneath midtown
Manhattan, an experiment took place: a hybrid meeting, virtual and physical,
with around 30 participants in the room, others connected by phone and a few
dozen more listening to a webcast and sending questions and comments
electronically. It was not a shareholder meeting; it was a meeting about
shareholder meetings, in particular electronic participation, and it was
designed to test some of the technology and techniques starting to be used
Financial journalist Avital Louria Hahn and I were interlocutors of a sort,
reading questions and comments coming in over the web and conveying them
into the physical meeting. We were inspired by
Hathaway, which asked shareholders to email their questions in advance
of its annual meeting to three financial journalists who then posed the best
ones at the live event. At shareholder meetings with an online audience,
this role is often undertaken by the investor relations officer.
Our meeting was organized and chaired by Gary Lutin, an investment banker
and governance advocate who runs the
and it included institutional investors, corporate executives, lawyers and
others involved in devising or participating in shareholder meetings.
As we worked to feed online participants’ views into the live discussion, it
dawned on me that Louria Hahn and I were probably the most powerful people
at the meeting: we could prioritize, rephrase or ignore questions; we could
disguise a questioner’s identity or reveal it when we weren’t supposed to.
We could have made everything up. (We didn’t.)
Still in the self-referential vein, the discussion focused a lot on the
transparency around shareholder questions and management’s answers before,
during and after the annual shareholder meeting. Should management members
answer all the questions during the meeting? Could they answer some
afterwards? Should questions be visible to everyone? Should questioners’
identities be shown?
That is a small sample of the growing debate around virtual shareholder
meetings (VSMs), a debate that recently came to a head with computer
security and storage company
20 annual meeting.
Adding voting to webcasts
Webcasting stockholders’ meetings is not new. According to a survey by
NIRI at its annual
conference in June, 31 percent of companies do it. Another survey from
TheCorporateCounsel.net confirms that around one third of companies
webcast their meetings.
What is new is letting shareholders not only listen or watch on the
web but also vote online during the meeting.
Intel did it first in
May 2009 using
Broadridge Financial Solutions’ VSM platform in conjunction with a
traditional physical meeting. Then Broadridge itself did the first
virtual-only meeting in November 2009. The company says an audio VSM can
cost as little as $4,000, while using video and other add-ons can push the
cost toward $20,000 to $30,000.
Broadridge doesn’t have a lock on the game.
Wells Fargo Shareowner Services did a hybrid meeting for
Charles Schwab in May, and in July
announced a new virtual meeting platform. For a VSM organized by a transfer
agent, beneficial shareowners need to have obtained legal proxies from their
brokers beforehand if they want to vote online during the meeting.
Broadridge’s advantage is being able to qualify any shareowner to vote in
Intel spurred a backlash against virtual meetings when it announced late in
2009 that it was going to follow Broadridge’s example and go virtual-only.
After complaints from shareholders, Intel backtracked and stuck with a
hybrid meeting for 2010. Then
Procter & Gamble had no sooner changed its bylaws to make a virtual-only
meeting possible than shareholders pounced on it. After discussion, P&G
promised not to go all-electronic for at least five years.
Likewise, Symantec triggered protest when it announced it was making this
year’s annual meeting virtual-only. In a response to a question about the
format during the half-hour meeting, chairman John Thompson said the idea
was to reach a broader range of shareholders. CEO Enrique Salem added that
two to three times as many people were attending virtually than had
previously attended the live meeting.
Before Symantec, 13 out of 25 meetings on Broadridge’s VSM platform were
virtual-only. But this time sparks flew because Symantec was the first
Fortune 500 company to go all-electronic. Objections came from the likes of
CalSTRS, helped along
by a letter-writing campaign staged by the United States Proxy Exchange (USPX),
a shareholder rights group. The kerfuffle hit the big time when Gretchen
Morgenson brought it to the
cover of the Sunday New York Times business section on September
26. Symantec quickly announced it would return to a hybrid meeting next
Hybrid versus virtual-only
Symantec’s about-face was declared a victory for shareholder activists
fighting against virtual-only meetings. But Lutin says such gloating misses
an important point: labeling a meeting physical, virtual-only or hybrid can
distract from abuses that could strike any kind of meeting. Many investors
think a hybrid meeting is ideal, but that doesn’t make the format immune to
criticism or flaws.
In Symantec’s case, a spokesperson said near the meeting’s conclusion that
all the questions had been answered. But Bruce Herbert from
Investment in Seattle complained that the company hadn’t answered a
question he had submitted and that a colleague’s remarks had been made puffy
Herbert also objected to not knowing who submitted the questions Symantec
did answer. Meanwhile, only eight out of 11 directors participated in the
meeting, although that fact was obscured by the meeting being audio-only, a
feature shared by 20 of the other 25 online meetings that Broadridge had
organized up to mid-October.
As for Broadridge, the company is steadfastly neutral about hybrid versus
virtual-only meetings. ‘We provide a platform and it’s up to the company to
decide how it wants to conduct a meeting for its shareholders,’ says Cathy
Conlon, vice president of strategic development at Broadridge.
Conlon is, however, keen for issuers and their investors as well as vendors
to have an honest dialogue about all the choices. For example, if a company
has no shareholder proposals or contentious issues on its proxy, could it
save money by doing a virtual-only meeting? When – if ever – is a
virtual-only meeting acceptable?
The answer is never, responds Tim Smith, senior vice president at Walden
Asset Management, which filed resolutions against virtual-only meetings at
Intel and P&G. He says institutional investors are keen on virtual meetings
as an add-on to physical ones, but most don’t want virtual-only meetings –
even for routine agendas. If a company starts doing virtual-only meetings,
what’s to prevent it from continuing when circumstances change for the
One idea that has been floated is to set criteria for when a physical
meeting is required. ‘But who’s going to take that decision?’ Smith wonders.
Better not to go down the route of virtual-only meetings at all.
‘As soon as shareholders hear a company is going virtual-only, there’s a
high percentage chance that some will stand up and complain or even file a
resolution,’ Smith predicts. He adds that the
Council of Institutional
Investors has called virtual-only meetings poor governance practice and
he expects governance ratings firms to weigh in with negative scores for
companies that adopt them.
Other investors are a little more sanguine. ‘Virtual meetings may make sense
at companies where there are no significant issues and the meeting is going
to be routine,’ said a pension fund representative at the Shareholder Forum
meeting. ‘But they should not be used in situations where there are serious
performance or governance issues. The annual meeting is the only time of the
year when boards need to face shareholders directly and virtual meetings
should not be used to insulate directors from those that they represent.’
Despite his campaign against Symantec, Glyn Holton, executive director of
the USPX, doesn’t entirely rule out virtual-only meetings. ‘As technology
develops and as guidelines and safeguards develop, maybe virtual-only
meetings will be possible,’ he says. USPX, which had been promising a
conference on the matter, is now planning an online forum to establish
Waiting for the technology
As Broadridge continues to tweak its VSM technology, Conlon is focused on
two current challenges: the transparency around questions, and the demand
for shareholders to have better communication with each other. Broadridge is
preparing a tool that would let the issuer show all questions to all
participants. Plus, some issuers, acknowledging that hearing a question
straight from the questioner is different from reading it or hearing it from
a company representative, have allowed shareholders to speak on a
teleconference bridge instead of just listening to a webcast.
Seven of the virtual meetings done with Broadridge have also had shareholder
forums on Broadridge’s Investor Network during the lead-up. Some companies
displayed all questions along with their answers, while others answered
directly to the questioner or at the meeting itself. One company that did
forums in 2009 and 2010 saw double the traffic the second time around.
Lutin wanted to find out whether anyone besides Broadridge could easily do
online verification of beneficial stock ownership. If so, an issuer could
launch a shareholder forum on its own website. It turns out it’s
straightforward using the Open Financial Exchange (OFX),
a protocol used for online banking and account management. Having proven the
practicality of verifying shareholders to participate in online discussion –
though not to actually vote – Lutin is now working on developing his system
to the point that any company or its transfer agent could use it.
The Shareholder Forum meeting was just one stage in
a whole proxy season worth of study,
including clear-eyed weekly articles by Louria Hahn. She began using the
word continuum to describe the way companies are starting to have more
dialogue with shareholders before, during and after the annual meeting,
spanning a growing time period and various platforms from the web to
traditional means. For example, one idea that has been floated is a
‘pre-meeting meeting’ several weeks before the AGM to answer shareholder
questions before they vote, instead of after.
Lutin is committed to considering any conceivable model. ‘People should
experiment, and we should cut them some slack to allow for that
experimentation,’ he concludes.
Best Buy’s 2010
hybrid meeting showed off the company’s ‘connected world’ theme with a
webcast, internet voting and online questions. It even had a director attend
via satellite-feed, proudly smiling from a giant flat-screen TV on the
stage. Best Buy launched a shareholder forum about five weeks before the
meeting, with validated shareholders posing questions. Management members
answered as many as possible during the meeting and later posted the rest of
the answers on the message board or replied to individuals directly.
Intel used Broadridge’s Investor Network to gather shareholder questions in
2009 and again
2010. This year it got around 160 questions via the internet, answered
more than two dozen before the meeting and others during the meeting, and
committed to answering the rest later. While most companies using the
Investor Network keep their message boards going for about six weeks before
the meeting and close them right afterward, Intel is keeping its message
board going year-round.
The internet bellwether hasn’t done a true virtual meeting with voting. But
YouTube webcast set a new standard for production quality, and an
application of its own devising,
Moderator, is a brilliant way to manage shareholder questions. It was
used for Google’s
in 2009 and
2010, with questions submitted by shareholders voted on by the audience
to identify the most relevant ones.
This NASDAQ-listed Chinese company, whose meetings are held in China, used a
VSM to reach its shareholders in 2009 and
2010, a great example of the global reach of the technology.
Standards for fair conduct of shareholder meetings
A company should provide all shareholders a reasonable opportunity,
before voting, to:
- ask management questions relating to
director elections and other matters to be decided at a shareholder
- present questions or views to management
publicly for consideration by other shareholders,
- observe any management or director
candidate responses to the questions other shareholders have chosen to
Source: The Shareholder Forum, September
30 Forum Report
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