Form Over Substance

Its year end.  A time for the inevitable year in review summaries and year ahead outlook for proxy and governance matters.

Of all the substantial topics being addressed, I’m somewhat amused with the concern over virtual-only annual meetings.  2017 saw a surge of roughly 40% in number of U.S. companies hosting virtual-only annual meetings to whopping total of approximately 170[1].

Institutional Shareholder Services (ISS), Glass Lewis, the Council of Institutional Investors (CII) and some public pension funds are concerned virtual-only meetings will “hinder meaningful exchanges between board members and shareholders.”[2]  To their credit, these organizations recognize virtual meetings can reduce costs and expand shareholders access.  Yet, in their view, these benefits do not outweigh the concerns.

I think this is a question of form over substance.  Annual meetings are a formality; the end of a process. I’m hard pressed to believe the outcome of a proxy vote depends upon the annual meeting format – be it live, virtual-only or hybrid.  Investors today have many tools to apply pressure to a recalcitrant board beyond staring them down in-person at a live meeting.

The substance of the matter is shareholder engagement.  Managements and boards have a fiduciary responsibility to shareholders.  They should understand investor perspectives and engage on issues meaningful to the creation or protection of shareholder value.  When there’s a break in engagement, the proxy process is a key vehicle to raise issues with all a company’s shareholders.

Now, there should be standards of conduct for virtual-only annual meetings.  These standards should provide essentially the same opportunity for shareholders to make a statement or ask questions as in a live meeting while still enabling the company to control the agenda.  This could potentially be done via a dial-in conferencing number using an authentication process similar to that for accessing the webcast.

A word of caution to companies:  Making it easier for shareholders to participate in annual meetings is a double-edged sword.  Be aware that a virtual-only or hybrid meeting may potentially give shareholders a larger platform and greater reach than just being in a hotel ballroom.  So be thoughtful in your approach.


Lisa Ciota
Lead-IR Advisors, Inc.

[1] Virtual Only Meetings: Streamlining Costs or Cutting Shareholders Out?, November 15, 2017
[2] ISS 2017-2018 Policy Survey Summary Results, pp. 5

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