In 2000, the State of Delaware passed legislation to allow corporations to hold their annual meetings “virtually” over the Internet. On one level, virtual participation in annual meetings is an exciting development, but it also poses risk.
As of 2010, approximately one third of US public corporations broadcast their annual meetings over the Internet. This is excellent, and we wish all would do so. But watching a streaming video is not the same as participatiing. It is one thing to spectate. It is another to exercise one’s authority as a shareowner of a corporation. The Delaware legislation not only allows for on-line participation by shareowners, it allows for that to be the only means of participation. So-called “virtual-only” annual meetingsundefinedauthorized under the legislationundefinedcan be conducted entirely over the Internet.
To date, a handful of corporations have held “hybrid” annual meetings, which permit both live and virtual participation. Even less, mostly minor corporations, have held virtual-only meetings. In late 2009, Intel Corp. announced plans to hold a virtual-only meeting the following year. The USPX organized a shareowner response and contacted Intel directly to raise concerns. We floated the idea of organizing a withhold proxy campaign against Intel. The corporation graciously backed down and held a hybrid meeting instead. But in September 2010, Symantec Corp. became the first Fortune 500 corporation to hold a virtual-only meeting. As with Intel, the USPX had lead a shareowner response, organizing a letter writing campaign asking Symantec to permit live participation. We were ignored. Only after Symantec held the virtual-only meeting did the national media pick up the story. Symantec has announced they will allow live participation at their 2011 annual meeting.
There is every reason to believe that, with strong safeguards, an option for virtual participation will boost attendance at annual meetings while protectingundefinedeven restoringundefinedshareowner rights that have atrophied over decades. No such safeguards are in place. To our knowledge, all virtual meetings held to date have used rudimentary software provided by Broadridge Financial Services.
Here are a few scenarios illustrating how virtual-only meetings could obstruct shareowner participation. A few of these were in evidence at Symantec’s flawed virtual-only meeting in 2010.
- A well known shareowner activist plans to ask some questions at the shareowner meeting, but his connection to the meeting somehow fails. He is left wondering if he was targeted or if there truly was an honest technical problem.
- The meeting software doesn’t reveal all questions submitted by meeting participants, allowing management to cherry pick which questions they want to answer. Management could “paraphrase” a pointed question or even substitute their own “softball” questions.
- A shareowner wants to challenge the chair’s conduct of the meeting with a point of order. She is within her rights to do so and may interrupt the chair for this purpose, but she finds that the electronic forum software won’t allow her to do so … one more shareowner right lost.
- A shareowner wants to make a floor amendment, but the software doesn’t allow that either.
- The meeting software provides no means of group communication, such as applause or expressions of dissatisfaction, so shareowners come away from meetings with no sense of how other shareowners felt.
- Corporate executives decide to pre-record their comments for a virtual shareowner meeting, including answers to pre-selected “shareowner questions.” The executives then don’t bother logging in during the actual “meeting.”
Most annual meetings are heavily scripted. The chance for real interaction often comes in informal encounters before and after the formal meeting. Those opportunities are also lost with virtual-only meetings.
While our movement has had success challenging virtual-only meetings, we cannot continue to do so one company at a time. There are approximately 13,000 annual meetings in the United States each year. At some point, the trickle of corporations experimenting with virtual meetings will become a torrent. We need a comprehensive solution.
To that end, the USPX is organizing a three-pronged shareowner response:
- Organize an on-line members community to draft shareowner-approved standards for the conduct of virtual and/or hybrid meetings,
- Actively encourage corporations to hold hybrid annual meetings, so long as they do so according to the standards, and
- Agree on sanctions the shareowner community will impose on corporations that conduct virtual meetings not in accordance with those standards.
We have formed a group (currently composed of Brett Davidson, Glyn Holton, Michael Malamut, Jim McRitchie, and Steven Towns) to organize this response. Their first step is to draft a white paper to identify issues and opportunities raised by virtual meetings. The white paper will not propose any guidelines or answer questions. Rather, it will pose questions, asking how shareowners feel they should respond to issues and seize opportunities. We hope the white paper will be ready in early December, 2010, at which time we will invite member comments. Based on member comments, we will draft possible standards for the conduct of virtual meetings, which members will edit, debate, and ultimately vote on in a members forum early next year.
Plans are coming together rapidly. This is extremely important work, and we need your help! Please contact Glyn Holton to join the organizing group.