WILL VIRTUAL ANNUAL MEETINGS BECOME THE NORM FOR PUBLIC COMPANIES?
WILL VIRTUAL ANNUAL MEETINGS BECOME THE NORM FOR PUBLIC COMPANIES?
Jonathan FosterJune 17, 2020
As annual meeting season approaches, it is time again to consider whether businesses will soon shift to a fully-virtual format. Online-only and hybrid meetings have been occurring for years; however, 2020 is the first year that companies may be forced to cancel their in-person events altogether.
Over the last few weeks, concerns over the global spread of coronavirus have prompted some large companies to switch their annual meetings to virtual-only formats. These companies include Facebook, Nvidia, Alphabet, and, most recently, Starbucks.
In early March, Starbucks released a statement announcing the change, writing that: “Due to the emerging public health impact of the coronavirus outbreak (COVID-19) and to support the health and well-being of our partners and shareholders, please note that the location of the Annual Meeting of Shareholders has been changed and will be held in a virtual meeting format only. You will not be able to attend the Annual Meeting physically.”
The sudden shift towards digital-only meetings is understandable. Few companies would want to risk spreading contagious disease through a crowded venue when a remote meeting option is available. The circumstances are very unfortunate — however, this annual meeting season will also give companies that typically hold hybrid or physical meetings a chance to test a virtual-only format. It will be important to get input from shareholders, too.
The annual general meeting has been an SEC-mandated staple in business for decades. During these once-yearly events, shareholders are invited to discuss recent business developments, engage with company leaders, nominate directors, and vote on pending matters. These gatherings often are very predictable, with clear, pre-established administrative agendas and talking points.
Historically, annual meetings have primarily been in-person events. Most are simple affairs, held in company offices and hotel event spaces with very limited attendance. I have attended several annual meetings of (even) Fortune 500 companies with zero shareholders, other than directors and employees, present.
Berkshire Hathaway’s annual meeting, more a yearly extravaganza, is unique. Last year, the company’s annual meeting drew over 40,000 attendees to Omaha for a three-day-long calendar of events that included the meeting, a picnic, a five-kilometer run, and shopping opportunities. “The crowd filled an arena and several overflow rooms to hear revered investors Warren Buffet and Charlie Munger answering questions,” one reporter for the Fort Worth Business Press wrote of the 2019 meeting.
Berkshire Hathaway reportedly intends to hold its usual festivities this year. However, the New York Times recently reported that the company is considering scaling back some events if the coronavirus threat remains. The company plans to continue a four-year trend of live streaming its annual meeting through Yahoo Finance, too.
There are a few reasons for the typical lack of attendance at annual meetings. While annual meetings once stood as shareholders’ only opportunity to interact with company leaders, quarterly conference calls, industry conferences, and more recent shareholder-management communications have lessened the annual meeting’s importance for shareholders. Some would-be attendees may choose to stay home because of the expense and time involved in attending the event. Others may do the same out of concern that, even if they did attend, the meeting does not provide a forum to voice their concerns to a large group of shareholders.
These factors have contributed to the rise of digital-only meetings. As defined by Harvard Law, the term “refers to a meeting in which shareowners are able to attend the meeting online via the internet, be certified electronically as a company shareholder, ask questions of the board of directors and management, and if desired cast their votes online in a secure manner while the meeting is in progress.” Virtual meetings are hosted via a secure website, and shareholders can log in remotely from wherever they are. Some online events include a video streaming component; however, an audio webcast is more common.
Fully-virtual meetings have their benefits. Companies can save on the costs that a conventional meeting demands while encouraging digital “attendance” from shareholders who might not travel. Interest in virtual meetings is on the rise. According to a recent study from the Denmark-based research firm ISS, the overall share of virtual annual meetings among Russell 3000 firms rose to 7.7 percent in 2019, a five percentage point leap from the 2.4 percent reported in 2014.
That said, most of the companies that have gone digital are relatively small. A survey conducted by Broadridge Financial Solutions found that of the 236 companies that held virtual meetings in 2017, 57 percent were small-cap — although it is worth noting that large-cap businesses accounted for 17 percent of all virtual-only gatherings. Interestingly, Broadridge researchers also found that when businesses chose a virtual format, they tended to eliminate their in-person component rather than hold a hybrid event. Only 10 percent of companies that held virtual annual meetings also hosted an in-person event.
Some critics have pushed back against virtual-only meetings, reasoning that, without a physical meeting, executives can avoid awkward questions from shareholders and the general public. The annual meeting can pose an opportunity for employees and consumers to protest company behavior or draw attention to pressing issues, too.
Take Amazon, for example. Last year, the e-retail giant held an in-person annual meeting that should have gone unnoticed — the event wasn’t live-streamed, and no cameras were permitted inside. However, the gathering still earned national attention when a host of protestors gathered outside the physical meeting to rail against the company’s treatment of workers and its allegedly lackluster approach to environmental issues.
Amazon’s experience demonstrates that the physical annual meeting can be a valuable opportunity for outsiders to draw attention to significant issues. However, it is worth noting that, beyond offering an opportunity for protest, physical meetings have not been found to contribute to greater accountability. According to analysts for the above ISS study, “There does not seem to be a link between governance structure and company meeting format. Companies with virtual meetings appear no more likely to have poor governance provisions […] Similarly, the dissent levels on key voting items […] appear to not vary materially for both physical and virtual meeting holders.”
A shift towards a wholly-virtual meeting is a viable option, but senior management should provide options for hard questions and shareholder engagement. The pandemic that now compels virtual-only meetings will force many companies to trial and troubleshoot a wholly-digital approach. If all goes well, this year’s annual meeting season may welcome virtual annual meetings not as a small-cap anomaly but as the convention for public companies.