Shareholder activism

US companies embrace virtual annual meetings

Moving from a conference centre to the internet allows you to boast about improving shareholder access

“On Wall Street

[march 11, 2016] by: Tom Braithwaite

Dressed in spandex, brandishing a whip and holding a sign that said, “Bankers need a spanking.”, Marni Halasa protested outside Citigroup’s annual meeting in New York in 2013. A year earlier Wells Fargo’s annual meeting in San Francisco attracted hundreds of activists in the streets outside and a smaller number, who bought shares, disrupted the meeting from within.

Suddenly, the attractions of hitting the road grew. JPMorgan Chase graciously laid on water and portable toilets for any protesters who wanted to sit in a pen outside its annual meeting in the outskirts of Tampa. Few did. Wells Fargo decided it would visit Texas; Citi has ventured to St Louis; Goldman to Salt Lake City. No major US company is believed to have selected Antarctica.

But now they don’t have to. In those San Francisco protests, Mother Jones magazine interviewed one protester who explained her presence: “It’s about doing things in real life, like, physically.” Which suggests a workaround. An increasing number of states — including, notably, Delaware, where many companies are registered — now allow “virtual” meetings. Here is the best part — moving from a conference centre to the internet allows you to boast about improving shareholder access. Now investors can submit questions online from anywhere in the world! They can vote at the push of a button!

One recent convert, HB Fuller, a California-based adhesives company, was “pleased to inform” its shareholders in the proxy filing that announces annual meetings that it was not stuck in the past — it would hold its first “completely virtual” meeting. Hewlett-Packard and its spin-off HP Enterprise have gone virtual. GoPro’s shareholders, who might well like to meet the well-paid management of their poorly-performing company, cannot. SeaWorld Entertainment, which would probably receive animal rights protests, is virtual only. Yelp, the struggling reviews business, and El Pollo Loco, a chain of chicken restaurants, have also gone virtual.

The disinterested observer can sympathise, in part. An annual meeting can be tiresome, dominated by gadflies, priests and union officials whose pet issues often have little to do with the core business. It is rare for a heavyweight institutional investor, or even sellside analyst, to cross-examine management. Activist battles are largely waged in the run-up and most voting occurs in advance. Only Warren Buffett can be counted on to throw a good party.

It is no surprise, then, that there appears to be rapid growth in a virtual solution. Broadridge Financial Solutions, the leading virtual meeting service, hosted only one virtual-only meeting and three hybrid meetings in 2009. In 2015 it did 90 virtual only meetings and 44 hybrids. Cathy Conlon, vice-president of strategic development at Broadridge, says the increase in 2016 is likely to surpass the 44 per cent year-on-year increase in 2015. “The numbers are looking pretty strong for proxy season,” she says, and points to “the ability to have more transparency and the ability to have more shareholders participate”.

This is only really true for the companies who use video or audio (the vast majority select only audio) as a supplement rather than a substitute to a physical meeting. Calpers, the large California public pension fund, is one of many to argue against virtual only meetings but more apolitical funds are not too bothered.

Mike Mayo, a banks analyst at CLSA, sees the rise of virtual meetings as “a further marginalisation of the shareholder-company bond”. And indeed one of the first virtual meetings, from software company Symantec, drew complaints from shareholders that their online questions had been ignored. Harder for that to happen face to face.

Institutional investors may prefer private meetings with management, but as Mr Mayo notes, any concerns raised there may never reach the independent board of directors. He adds: “Just because the institutional investor community has fallen short in holding boards accountable shouldn’t mean that boards provide even lower service to shareholders.”

Ms Halasa, who now protests as part of a group called Revolution is Sexy, says: “To keep this sanitised environment that effectively quashes dissent is not in a company’s long-term interest.”

They are both right. The fact that few bother to use them effectively does not mean that an annual meeting is useless. Companies should think hard about joining the motley crew who have gone virtual only. Using technology to broaden access is well and good; using it to shut out shareholders is another.

tom.braithwaite@ft.com