FOCUS REPORT

Testing the Communication Tools

At this week’s open meeting of the Shareholder Forum to address standards for electronic communications, we tested what we were discussing. And then we asked what might make it better.

The Forum meeting was conducted with the same kind of chaired discussion common to shareholder meetings, with about 30 people convening in a room and about the same number joining by webcast, so it provided a perfect opportunity to see what could be done with readily available communication tools. We started with what Thomson Reuters[1] considered a conventional format for the quarterly analyst webcasts that have evolved to satisfy the information requirements of professional investors – something that every company can afford, and that every investor considers accepted practice. Then they suggested some additional features to adapt the webcast to our open discussion. For the three panel members who wanted to demonstrate “remote” participation, they added open phone lines so each of them could talk “live” rather than on 30-second webcast or satellite delay. (Now you know why even the most technologically sophisticated network news programs have to use earphones for conversations between correspondents and anchors.) And for the webcast participants, they added features allowing them to present comments online and respond to voting proposals. Finally, we were inspired by the Berkshire Hathaway example to add two reporters who could act as delegates of the webcast participants and present online comments orally, providing a more natural flow of discussion.

Most of the participants who contributed their views to this article expressed a generally positive views of the resulting experience, which Mark Latham, founding director of Proxy Democracy and a representative of individual investors on the SEC Investor Advisory Committee, called “well designed and executed.” And they also had a lot of suggestions about doing more.

More video

If there is one technology-related item that everyone seems to like it is video. One participant with an activist pension fund perspective expressed so much support for video that he now considers audio-only to be appropriate only for “small-cap companies looking to save money.”

On the corporate side, Cary Klafter,[2] vice president of legal and corporate affairs at Intel and perhaps corporate America’s biggest proponent of “virtual” meetings, has used video for his company’s annual meeting and prefers video to audio-only. The advantage of a video webcast is “you can see people’s faces,” Klafter says, and he also likes the way webcast video screens provide primary and secondary screens that can show both slides and video together. The disadvantage, he says, is that video gets to be “more complicated in production and expense.” However, he adds, “many companies now use video for internal meetings, marketing and other purposes, and so this is a known technology.”

Audio-only, on the other hand, can be “relatively austere” and the sound quality is not always good in the absence of sufficient microphones, Klafter says. The situation was satisfactory in the Forum meeting, though, as the audio quality was good and one could easily hear the proceedings, says Klafter, who participated via one of the open phone lines. (Note: We used one high quality microphone for every two seats.) “In the absence of upgrading to video it seems that you have got everything, the entire suite of [features].”

Latham of Proxy Democracy also prefers video but says he realizes the cost is high. He says he was impressed with the way the Forum used the all-audio package, though, and pleased with the resulting ability to participate remotely. “The simple level at which [the meeting] was done was quite effective,” he says.

Slides for everyone

Several participants, including publisher James McRitchie of CorpGov.net, would like to see the Forum include more visual elements like slides. McRitchie, who participated via webcast, says that when he got distracted during the meeting and tried to return and follow the agenda, he found it difficult. Having slides of the questions and other matters being discussed would have made it easier to rejoin, he says. “At least it would show what subject we’re on right now.”

Dean Starkman,[3] editor of Columbia Journalism Review’s business reporting section, The Audit, suggested from his observations as an in-person participant that people sitting in the room would have benefited from the use of projection screens so they could see the same presentation that the webcast participants were seeing on their computer screens. “Two projection screens would be nice so everyone could see,” says Starkman.

Polls with instructions

The polling tested during the meeting received a combination of praise for what it could do and concern about how the Forum did it.

Nearly everyone found the process confusing. The polls were displayed on the webcast screen close to the end of the meeting, when the meeting’s chairman, Gary Lutin, asked participants to vote on several proposals without telling them how to do it. There was also confusion about matching proposals to the polling proposal numbers, and some participants lost count and were unsure as to which proposal they were voting on.

Among the several meeting participants recommending improved chairman performance was the chairman, himself, who had observed immediately after the meeting’s adjournment that he should have taken the time to learn how the polling process worked before using it. Lutin expressed a belief that it could be managed without confusion by anyone who spends a few minutes before the meeting to understand the process and the need to provide instructions for participants, and that under those circumstances it should be a very valuable communication tool. 

Tracey Rembert, an analyst and governance advocate at Pax World Management who attends many shareholder meetings, said in spite of the somewhat bumpy Forum experience she was impressed with the value of instantaneous polling. “I have never seen a company do that.”

Credible moderation

To make the process of question submission as fair as possible, the Forum asked two journalists, Avital Louria Hahn, editor of E-Meeting Review, and Neil Stewart, editor-at-large of IR Magazine, to moderate the comments and questions received from online participants.

In a similar way to Berkshire Hathaway’s recent journalist-moderated Q-and-A, the Forum journalists selected the comments to be presented, raising their hands to signal incoming questions. But since the Forum meeting was an open discussion instead of a Q-and-A, participants spoke throughout the meeting and the journalists had to choose the right moment to present the questions, just like everyone else sitting around the table with something to say.

Most participants interviewed for this article indicated that they felt the journalist-moderated process was fair. “It seemed like a good system to have two people on the receiving end processing and injecting the comments,” says Proxy Democracy’s Latham. “It is always tricky to figure out how to conduct an Internet forum, and that seemed like a smart system.”

But getting companies to use independent, third-party moderators may be a long shot, says Mark Schlegel of Moxy Vote, a website that supports activist and individual investor proxy voting. Companies usually act as their own Q-and-A moderators and as such they can easily ignore inconvenient questions received online that no one else can see, he says.

Stewart, one of the two journalists, says that even a moderated Q-and-A does not necessarily assure transparency. With few exceptions most companies have not made their online questions visible to all, he says, suggesting that the area may be one in which investor relations teams may want to get involved. “There is nothing forcing companies to make the process transparent.”

And there was one webcast participant who saw the process as simply not fair, saying he was dissatisfied that only two of his nine comments and questions had been presented.

Post all questions and comments!

Numerous participants suggested that one of the surest ways to increase transparency, even by the Forum, would be for questions and comments submitted online to be visible to all participants.

These preferences emerged even as participants expressed confidence that the journalist-moderated process was fair. They nevertheless indicated that given a choice they would prefer to see the Forum questions and comments posted, either during or after the meeting. “I would like to see people’s questions even if they don’t get answered,” says Rembert of Pax World.

Seeing other shareholders’ questions has emerged as a key issue for many investors. Some, including Rembert as well as McRitchie and Schlegel, suggested that companies always be required to post questions online as a way to hold them accountable.

Rembert says that in a traditional shareholder meeting, one knows who spoke even if the person did not give a name. In a question that comes over the internet and is only seen by the company, there is no way to know who commented and on what subject. “We need to know what is being skipped and what is being addressed,” says Rembert. “What is the elephant in the room that all these shareholders care about?”

Some raised the question of how to post questions for all to see if the company uses a moderator who does not approve all the questions at once. Schlegel suggested that if questions and comments cannot be posted in real time for flow and logistics reasons, then they should be posted immediately after the meeting.

Even if a company agrees to post questions online, issues arise concerning the volume of questions and the timeframe for posting them, participants pointed out. In another scenario, others discussed how to manage the posting if a large number of questions came in all at once, creating a potentially confusing situation. Rembert suggested as an example that if a large company expects a large number questions to come in, it can create headings so that people can select categories for their questions and keep them organized for others to read. “We need those accountability metrics,” says Rembert.

Finding the right way

Asked about the post-everything controversy, the Forum’s chairman reports that he remains undecided about how electronically transmitted questions should be treated, by companies and also by the Forum. As both an advocate of investor access and someone responsible for maintaining the kind of orderly exchange required for all views to be considered, he says that every time someone has suggested a seemingly sensible solution he has eventually realized that the process may be complicated by concerns about confusion, information reliability, privacy issues, publishing responsibility, etc. But he is confident that real-world testing of alternatives will soon lead to a solution at least as effective as a chairman’s looking around a room to decide which waving arm gets to speak.

In the end, as Moxy Vote’s Schlegel sees it, the discussions about how to use electronic processes are really all about how to improve shareholder communications. Attributing his observation to a comment made by Forum chairman Lutin, Schlegel concludes that “the point of the Forum was not whether you should or shouldn’t do a virtual meeting. It was that if you do a virtual meeting, here are some things that you really need to consider that investors think are important.”