Business Day

Meet the Shareholders? Not at These Shareholder Meetings

Fair Game

By GRETCHEN MORGENSON    MARCH 31, 2017

Companies can use technology to be open and transparent with their stakeholders, or they can deploy it to go underground. Now, as this year’s shareholder meeting season begins, investors are taking aim at directors whose companies use technology as a shield against accountability.

At issue is the increasingly common corporate practice of holding annual meetings that offer only online participation for shareholders. A change in Delaware law in 2000 allowed companies incorporated there — which include a majority of American public companies, and two-thirds of the Fortune 500 — to conduct their annual shareholder events remotely. Other states also allow such meetings, but some, including Massachusetts and New York, do not.

Virtual meetings, some investors say, cede far too much control to corporate managers during the sole event each year when they must look owners in the eye and listen to their views. Managers presiding at virtual-only confabs, critics say, can cherry-pick which shareholders’ questions to answer and prevent investors from communicating one on one with management.

Shareholder meetings may seem like highly ritualized events that only pretend to offer meaningful interactions between companies and the investors who own them. But it is undeniable that these events are the only time each year when investors can direct questions to company officials and air their praise or grievances.

Timothy Smith is the director of environmental, social and governance share owner engagement at Walden Asset Management, which oversees $3 billion. He often attends shareholder meetings and presents proposals on issues to be voted on by investors.

“These are not management’s meetings, they are the meetings of the owners of the company,” Mr. Smith said. Online-only events give company officials “tremendous power over controlling, censoring and really limiting the engagement of share owners with the board and management.”

For decades, companies’ meetings were actual gatherings, often held at headquarters or nearby. In recent years, companies have added online functions, allowing increased participation by shareholders who cannot travel to the events. Investors have welcomed these hybrids.

But a growing number of companies have moved to online-only shareholder meetings. Last year, 154 companies conducted such events, up from 21 five years earlier, according to Broadridge Financial Solutions, which sells virtual shareholder meeting services.

Many of the companies limiting their meetings to the virtual world are small, and switched because shareholders rarely attended their in-person events. But e-meetings are also rising among companies in the Standard & Poor’s 500-stock index that have throngs of interested shareholders. Last year, 14 of these companies held online-only meetings.

It is too soon to tell how many companies will do so in 2017; companies typically advise shareholders about their meetings only when they file their proxy statements. But early indications suggest further growth this year. At least half a dozen large companies have said they will join the ranks of those offering virtual-only meetings in 2017. They include Ford Motor, Alaska Air, Duke Energy, ConocoPhillips and the GEO Group, a private prison operator.

Scott M. Stringer, comptroller of New York City and overseer of city pension funds with $170 billion in assets, hopes to stop this trend. His office recently began communicating with companies that held online-only meetings last year and whose shares the pension funds own. If they continue down this path, he said, the comptroller’s office will recommend the pensions vote against the election of all directors sitting on corporate governance committees at the companies.

Duke Energy is one company that has heard about the new policy. On March 24, Mr. Stringer’s office wrote to Duke criticizing the company’s plan to have an online-only shareholder meeting on May 4. A number of shareholder proposals opposed by management are scheduled to come up at the meeting, and some investors are concerned they will get short shrift. One proposal calls on Duke to issue a report on the public health risk associated with its coal use, and another asks it to assess the impact on its portfolio of limiting the global increase in temperature to 2 degrees Celsius, a goal agreed to in the 2015 Paris accord.

I asked Catherine Butler, a Duke Energy spokeswoman, why the company had switched to a virtual-only meeting. She said Duke was doing so in part because other companies were. The major reason: “We have a worldwide shareholder base, and we want to make sure the majority of shareholders have the ability to participate,” she said. The company’s response to Mr. Stringer’s office made the same case.

Of course, a hybrid meeting would also allow Duke’s shareholders around the globe to participate. But never mind that.

“It’s one of the great markers of American enterprise — whether you own one share or one million, you can speak at a company’s annual meeting,” Mr. Stringer said in a statement. “Except now, in this interconnected world, companies are using technological tools to whittle away at investors’ rights and hide from accountability. If boards shirk this responsibility, share owners should join us in holding them accountable.”

Mr. Stringer is not alone in his dislike for virtual-only meetings. The Council of Institutional Investors, a nonprofit group of corporate, public and union employee benefit funds and endowments, has urged companies using virtual meetings to do so only as a supplement to in-person gatherings.

Gary Lutin heads the Shareholder Forum, which convenes independent workshops to help investors make sound decisions. A 2010 program examined online-only shareholder meetings.

“Hybrid meetings allow shareholders to show up and participate any way they want to,” Mr. Lutin said. “There’s no reason to make it a pure virtual meeting other than to control the communication, and if that’s the purpose, that’s not consistent with annual meeting requirements.”

Investors have tried other methods to slow the e-meeting trend. Last fall, Mr. Smith hoped to put forward a shareholder proposal at Comcast, the media company, recommending that it have a hybrid meeting rather than just an online version. But Comcast received permission from the Securities and Exchange Commission to exclude the proposal from its proxy, so shareholders will not be voting on it this year.

Mr. Smith said he objects to virtual-only meetings in part because he’s had problems participating in them. At the 2012 annual meeting of United Natural Foods, a distributor of organic and specialty foods, his phone line went dead while he was commenting on a shareholder proposal.

Halie O’Shea, a United Natural Foods spokeswoman, said that after the 2012 meeting, the company moved to the hybrid model. “The company has high regard for Mr. Smith and is responsive to stockholders’ views and concerns,” she said in a statement. “The proposal which Mr. Smith spoke in support of at the 2012 annual meeting was ultimately implemented by our board.”

United Natural Foods did the right thing. But given that a growing number of companies seem to like what virtual-only meetings offer, withholding votes from their directors may be necessary to slow the trend. Individual investors who suspect that their companies are using e-meetings to armor themselves against shareholders may want to withhold votes as well.

A version of this article appears in print on April 2, 2017, on Page BU1 of the New York edition with the headline: Keeping Shareholders at a Distance.

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