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Forum Report:
Electronic Participation in Shareholder
Meetings
Results of July 13, 2010 Open Forum
Meeting
Requirements of shareholder meetings
Consensus on standards to be judged by investors
Plans for continuing Forum projects
At Tuesday’s open meeting of the
Shareholder Forum, participants were able to resolve key issues relating
to the requirements of shareholder meetings and, in the time remaining,
establish consensus on a few of the proposed standards for fair conduct.
The meeting was adjourned with the understanding that the Forum would
continue to consider other proposed standards in subsequent
communications.
It should be noted that the meeting was limited to 30 in-person
participants and included a somewhat larger number of webcast
participants, with places allocated according to usual Forum practice to
assure representation of relevant corporate, investor and professional
perspectives in an effective resolution of marketplace interests. In this
first Forum test of webcast participation,
arrangements were made to use the audio processes that have become
conventional for quarterly analyst webcasts.
To adapt this to the open discussion protocols required for both Forum
meetings and shareholder meetings, provisions were added for presenting
comments and approving proposals. Webcast observers were therefore able to
participate in the discussions and decisions.
The results of the meeting are summarized below, and its archived webcast
is available for reference:
July 13, 2010 webcast: Open Meeting of the Shareholder Forum
Requirements of shareholder meetings
The meeting started with discussions that became focused on perceived
distinctions between “virtual” and in-person shareholder meetings, and on
associated administrative considerations relating to voting procedures or
“proxy plumbing” issues. Participants concerned primarily with
communication objectives raised questions that shifted the focus of
discussion to what can and should be done with electronic tools to improve
access, timing, and other elements of investor communications, regardless
of a meeting’s label as “virtual” or “real.” Considering the advice of
participants with relevant expertise, the following conclusions were
established as a foundation for addressing the requirements of shareholder
meetings:
A. Distinction
between legal requirements and marketplace discipline – The legal
requirements for conducting a shareholder meeting are essentially limited
to providing an opportunity for the owners of shares or their proxy
delegates to vote on matters that have been properly presented, whether
they participate in person or by electronic means.
It was noted, for example, that a meeting called in a parking lot, with
the parking lot attendant authorized by the board to conduct the required
formalities, could satisfy all the formal requirements. Other elements of
a shareholder meeting, such as the conventional post-business
question-and-answer session, are required only to satisfy marketplace
expectations. Commenting after the meeting on these expectations of
investors who make voting or investment decisions, a representative of
corporate director perspectives observed that “the marketplace is more
affective than the courts in enforcing standards of ‘good governance.’”
In this context, Forum participants can and should focus on
standards of conduct to be judged by the investor marketplace, and on
which corporate competition for capital will be based.
B. Satisfying
the procedural requirements of voting at a meeting – Although the
various processes for providing voting instructions and being present for
actual voting at a meeting stirred the interest of Forum participants
concerned with the “proxy plumbing” issues that are now being considered
by the SEC,
it was finally concluded that a company relying upon competent legal
advice could arrange properly administered voting in conjunction with any
level of electronic communication. Using the “parking lot meeting”
described above as an example, it would be simple for any company to
conduct the minimum formalities of a traditional “real” meeting and then
add whatever electronic communications are considered appropriate for the
purpose of addressing investor interests.
Companies can address their interests in investor communications
without being constrained by “proxy plumbing” requirements.
C. Deconstructing
the shareholder meeting process – A representative of investor
perspectives asked whether there is any reason why a company cannot
conduct a meeting for information purposes a few weeks in advance of the
formal shareholder meeting “so that the company and shareholders could
make their cases regarding ballot items before the votes are cast.” [See
the July 29, 2010 note, below.] The
clear answer was that there is no reason at all why a company cannot do
that, and it is in fact standard practice for companies to conduct a
variety of meetings and other communications in advance of the formal
shareholder meeting when the voting issues are considered important. Forum
participants with experience in proxy solicitation regulations concurred
that possible filing requirements would not be burdensome.
Companies are in fact free to conduct whatever communications they
consider justified to respond to investor interests in voting issues, at
any time, subject only to the regulations that are routinely observed in
all corporate communications with investors.
Consensus on standards to be judged by investors
With less than twenty minutes remaining to conclude the scheduled two hour
meeting, participants agreed to the chair’s proposal that the agenda for
discussion be suspended so that at least a few of the proposed standards
could be considered prior to adjournment, with the understanding that the
Forum would continue to address any remaining proposals in post-meeting
communications.
The following two standards, presented as questions to be considered by an
investor, had been proposed for consideration prior to the meeting
and after discussion were supported unanimously by the meeting’s in-person
and webcast
participants:
1.
Does every shareholder have equal access to information relevant to
the election of directors and other matters to be decided at the meeting?
2.
Does the company provide shareholders with reasonable opportunities
to present questions to management relating to matters that will be
decided at the meeting?
(Note: The originally proposed Standard #2 was modified during
discussion to clarify its meaning by adding the words “to management.”)
A third standard, which had not been previously proposed, was developed
during the discussion to address issues raised by participants, and was
also supported unanimously:
3.
Does the company follow a reasonable procedure for reporting
investor questions and comments?
Consideration of the remaining four standards
that had been proposed was deferred, according to the previously stated
understanding that those and any other proposed standards would be
addressed by Forum participants in subsequent communications.
Plans for continuing Forum projects
In post-meeting discussions, several Forum participants have encouraged
the development of separate projects to allow more focused attention to
their specific interests. We will therefore be considering possible
projects for each of the following interests, as committed during the
meeting or in response to subsequent requests:
►
Definition of standards – This is, of course,
the stated purpose of the E-Meetings program, and the Forum is committed
to completing the review of proposals. We may, however, consider
additional projects to support this process.
►
Communication processes – The effective
development of investor communications will require an understanding of
what can be done with existing communications services, including how they
can be most effectively applied to the particular requirements of
“deconstructed” shareholder meetings.
►
Voting processes – The “proxy plumbing” issues
now being addressed by the SEC have focused increased attention on the
need for cost-efficient, reliable processes to assure (a) the timely
delivery of beneficial owners’ voting instructions and (b) the
verification of both registered shareholders and authorized proxy holders
who are present when voting is opened at the formal meeting.
We will welcome your suggestions for addressing these interests, or any
other interests that support the establishment of marketplace standards
for more effective investor communications.
GL – July 16, 2010
Gary Lutin,
Chairman
Program Panel:
Hye-Won Choi, TIAA-CREF
Margaret M. Foran, Prudential Financial, Inc.
Mary Beth Kissane, Walek & Associates and National Investor
Relations Institute (NIRI)
Cary I. Klafter, Intel Corporation
Alvin P. Kressler, III, Bloomberg
James Kristie, Directors & Boards
Eric Nowak, Swiss Finance Institute and European Group for Investor
Protection (egip)
David A. Silverman, Blue Harbour Group and New York Society of
Security Analysts (NYSSA)
Timothy Smith, Walden Asset Management
Frank G. Zarb, Jr., Katten Muchin Rosenman LLP
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