FOCUS REPORT

Why Wait for the Annual Meeting?

For decades, annual meetings have been criticized as vestiges of ancient rituals designed to serve the interests of shareholders – in another era. Back then – and the “then” may be 100 years ago – shareholders would make their way, sometimes by horse-drawn carriage, to a certain location on a certain date, time and hour, to vote as well as learn about the company in which they invested. The meeting was a major information-exchange event, and one that couldn’t have been done any other way.

Fast forward to 2010. As companies blog, twitter, conference call and web cast, communication with investors is becoming more frequent, more easily available, and less clustered around an event. Some companies are delivering quarterly reports a day or two ahead of conference calls. And some have begun experimenting with their annual meetings by taking elements typically confined to a traditional meeting, such as shareholder Q-and-A, and delivering them before or after the meeting.

Timing the delivery of information

Instead of concentrating high-cost communication in a convening event such as an annual meeting, today’s lower-cost communication technologies have enabled companies to more closely align the release of information with availability as well as with its role in decision-making. This has meant more frequent communication, and a pattern that is beginning to resemble a continuum. And as elements of the information exchange that were once clustered together begin to become liberated from the confines of an event, companies also have the opportunity to reexamine their communication practices to better suit shareholder interests as well as choose better timing for the information’s delivery.

It is important, however, to remember that the idea of segmenting communication to increase effectiveness is not new. The foundations of continuum communication were set about 75 years ago when the Securities and Exchange Commission established the rules requiring companies to send information to shareholders prior to the meeting. Subsequent developments in securities record administration have resulted in virtually all the voting occurring before the meeting. So, we are already dealing with a system in which all the important communications take place in advance of the meeting.

Yet most companies still hold annual meetings in a way that resembles the days of the buggy. Now, instead of a large and interested audience, attendance is meager. It’s no wonder! Instead of fate-changing debates and decisions, voting is virtually completed before the meeting even starts. And, ironically, it has become conventional practice for the vestigial Q-and-A to take place not before voting, when it might influence a decision, but after the voting has been completed, and even after the formal part of the meeting has closed.

A fresh look at the old Q-and-A

Timothy Smith, SVP at Walden Asset Management and a veteran shareholder activist, would like to see companies improve two practices regarding Q-and-A. One, to have the Q-and-A held before the vote, not after. “What if the CEO said something outrageous during the meeting and you did not want to vote for that board?” he says. Second, Smith says, include the Q-and-A in the formal part of the meeting. Holding the Q-and-A after the official part of the meeting has been adjourned, as most companies do, implies a status of an “informal, unofficial informational session” that “sends the wrong signal,” he says. “It sends the message that Q-and-A is a conversational rather than an integral part that relates to the votes.”

Overall, Smith wants to see companies treat Q-and-As as an important element of their shareholder communication, and not, as in some cases, an obligation that is greeted with defensiveness or even hostility. He has been favorably impressed by efforts of companies like Intel that have actually expanded Q-and-As to both before and after the meeting. And he wants to see it extend beyond the meeting event, suggesting that companies take the answers from the Q-and-A and append them to the annual meeting. “Compilation of major questions appended to the annual meting report would be the closing of the loop.”

Testing more effective communications

Recent examples point to many companies beginning to look at expanded timing of annual meetings. Nearly all of the companies on our meetings observation list, for example, have begun liberating elements of their Q-and-A sessions from the confines of the meeting and delivering them before as well as after the meeting.

Berkshire Hathaway, which did not even web cast its meeting, broadened the opportunity for investors to ask questions by asking them to email questions to three financial journalists prior to the meeting. The journalists, who served as objective moderators, chose the most important questions for the chief executives to answer in a five-hour answer marathon during the meeting. This gave shareholders more time to prepare their questions, allowed third parties to organize and prioritize the questions, and provided management with an opportunity to focus on issues of broad interest.

Best Buy has opened a message board about five weeks before its meeting on which validated shareholders can ask questions. The company says it will answer as many as time allows during the meeting. For the remaining questions it will either post answers on the message board, which it will keep open for a few days after the meeting, or reply directly to the individuals.

Intel, which also opened a message board more than a month prior to its meeting, collected some 160 questions from the Internet, and answered more than two dozens before the meeting. It answered some more during the meeting, and has committed to answering all that remain after the meeting. “I like what Intel did,” says Smith. “It shows respect for the dialogue.”

Dell has taken an extra step in the continuum approach. Its “Dell Shares” project is actively managed on a continuous, year-round basis as a pioneering corporate blog on which shareholders can ask questions and on which the company replies.

Best Buy, Charles Schwab, Dell and Intel also enabled shareholders to take surveys on the message boards. The information collected helps the companies better prepare for the meeting.

Trends of progress

Quarterly conference calls for earnings reports, previously reported as a leading example of adaptive communications, are also evidencing the trend toward a continuum approach. It had been standard practice for companies to release earnings shortly before the meeting, giving analysts the opportunity to quickly look over the document before joining the conference call. But lately, observes Michael Cotter, SVP of corporate communication services at Thomson Reuters, some companies have released earnings several days before the meeting and even collected analyst questions before the meeting, enabling the company to cluster the questions and answer them in batches. Other companies have scheduled calls dedicated to only Q-and-A, skipping the traditional summary of previously information, Cotter says.

“Companies are beginning to think about how they can leverage technology to make content accessible to the world,” says Cotter, “and are also thinking how investors are using the information and what sequencing would make it user friendly.”

Smith, as a vigorous advocate of investor rights, says he applauds efforts such as Intel’s to open more access for shareholders. Nevertheless, with many companies still treating shareholders with disrespect, much work is still ahead. One thing is certain, he says. “With votes coming in at a 40-50-80-% majority on corporate governance issues, and at 20-40% on social and environmental issues – companies need to pay more serious attention to their shareholders’ input and the messages they are sending.”

Can we all agree on that?