Seeing Success

Engaging Board Members and the Pushback against Virtual Shareholder Meetings

Virtual shareholder meetings are facing increasing pushback from governance advocates who are concerned they may be used to keep investors from effectively engaging board members and pressing management on environmental, social, and governance (ESG) issues.

Virtual shareholder meetings—where companies fulfill their requirement to meet shareholders annually by an online audio or video link instead of an in-person meeting—are increasingly being used by companies as a way to save on the costs of meetings, according to Glass Lewis. The proxy advisory firm said that 163 companies held virtual-only meetings in 2017, up from 122 the year before.

Advocates and Critics

Virtual meetings do have their advocates, as they could support an increasingly global group of shareholders who cannot afford the time and expense of travel. From this perspective, online meetings may in fact enhance board accessibility for investors. “They can increase shareholder participation at an annual event that can often be a sparsely attended, pro forma exercise for many companies,” according to a study by law firm Gibson Dunn. “Electronic meetings also eliminate travel time and avoid the expense of participant travel and the need to locate and provide a secure physical venue.”

But with impact investors increasingly using their votes at annual meetings to adopt resolutions urging management to adopt ESG policies or provide disclosures of such things as their firm’s contribution to climate change, concern is growing that virtual shareholder meetings might stifle productive dissent. Governance advocates like the Council of Institutional Investors, for example, have begun to oppose such meetings because they obstruct shareholders from meeting with company management and engaging board members directly.

One critic, New York City Comptroller Scott Stringer, warned that some companies “are likely using online-only meetings to insulate themselves from uncomfortable interactions with concerned shareowners, while others may have moved to virtual-only meetings without realizing they are violating an important investor right.”

Stringer, who oversees $190 billion of pension assets, said he would recommend that the city’s pension fund vote against the directors at companies that continue to use virtual shareholder meetings exclusively.

Success and Compromise

The pushback appears to be having an effect. After protests from ESG groups, railroad company Union Pacific and oil company ConocoPhillips both announced that after holding virtual-only shareholder meetings in 2017, they had decided to go back to the old format of in-person meetings.

“The board values these discussions and considered the views of these stockholders at its December meeting in making the decision to hold in-person annual stockholder meetings until it determines otherwise,” ConocoPhillips said in a statement to Bloomberg.

The oil company added that in-person meetings in the future will also be accessible by internet, a type of hybrid shareholder meeting that meets the needs of faraway shareholders but also allows for in-person attendance.

Broadridge Financial Solutions, which processes electric proxy votes for companies, said that about a fifth of the companies that hold virtual shareholder meetings in 2018 will use the hybrid method, according to Bloomberg. “Hybrid meetings allow shareholders to show up and participate any way they want to,” Gary Lutin, head of the Shareholder Forum, told The New York Times.

Bloomberg also notes that ESG investors can take advantage of the fact that management and directors at many major firms now spend far more time meeting one on one with shareholders to hear their concerns than they do at annual meetings.

As large corporations experiment with meeting formats, shareholders will need to be vigilant that any changes work for all parties. Shareholders must consider whether online-only meetings suit their needs, or if they must advocate for in-person or hybrid approaches in order to engage to the extent they wish to.

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