Modern electronic communications technology has dramatically expanded the opportunities for engagement between public companies and their shareholders through means such as webcast earnings calls; social media, including Twitter; telephonic or online access to in-person annual shareholder meetings; online roadshows and the like. However, it is only recently that an increasing number of prominent public companies have started to replace in-person annual meetings with virtual annual meetings conducted exclusively online. Companies such as HP, Intel, Fitbit, Sprint, and GoPro have in just the last two years held electronic-only virtual meetings for the first time, enabled by more advanced virtual meeting technology.
Virtual annual meetings offer benefits to both companies and shareholders. For example, a virtual meeting eliminates the costs of an in-person meeting, including travel for shareholders and a company’s directors and management, thereby allowing shareholders more time to attend a greater number of meetings, as well as minimizing the amount of time that directors and management must spend at meetings. This potentially has the effect of increasing the participation of shareholders who would not otherwise be able to travel. For a number of smaller public companies, the choice to hold a virtual annual meeting acknowledges the reality of sparse attendance by shareholders. Virtual meeting platforms also provide the option to allow questions to be submitted in advance, which allows companies to focus on shareholder questions and prepare comprehensive answers. Virtual meetings also give companies the appearance of being “tech-savvy.”
Virtual shareholder meetings, however, have some downsides. Certain institutional shareholders and shareholder activists believe that virtual shareholder meetings make it more difficult to express their views to management than in-person meetings, because virtual meetings are less personal and also because of the potential for management to pre-screen questions to avoid addressing shareholder concerns. In particular, both CalPERS and CII believe that virtual meetings should be used only as a supplement to in-person meetings (so-called “hybrid” shareholder meetings). Some shareholder activists have even submitted shareholder proposals under Rule 14a-8 of the Securities Exchange Act of 1934 requesting companies that have adopted virtual shareholder meetings to switch back to in-person meetings (although the SEC staff has generally permitted exclusion of these proposals on the basis that they relate to a company’s ordinary business operations). And while proxy advisory firms such as Institutional Shareholder Services and Glass Lewis have not published written policies against virtual annual meetings, they may make adverse recommendations if virtual meetings were being used to thwart shareholder discussions or proposals. In addition, virtual meetings may make voting outcomes less certain because the ease of shareholder voting means that more shareholders may wait until the meeting to vote their shares (rather than submitting their proxies in advance) or may make last-minute changes to their votes. This is particularly a concern for shareholder meetings involving contentious shareholder votes.
Virtual Meeting Best Practices
To address some of these concerns, institutional investors, public company representatives, proxy advisors, and others have advocated for best practices, such as the guidelines published by the Best Practices Working Group for Online Shareholder Participation in Annual Meetings, which include:
- Adoption and advanced publication of principles for online participation in the virtual shareholder meeting;
- Establishing procedures to validate meeting participants as shareholders, and to facilitate voting and the proper recording of votes;
- Establishing reasonable guidelines for questions, such as procedures for submitting questions in advance, setting time limits for questions asked of management, and setting specific and reasonable guidelines for the display of questions and answers;
- Making arrangements for shareholders to present shareholder proposals; and
- Archiving the meeting on a publicly available website for a specific and reasonable period of time.
The corporate codes of each state provide requirements for the conduct of annual meetings of shareholders. Some states allow virtual-only meetings, such as Minnesota, Ohio, Pennsylvania, and Texas. However, some of these states (including California) impose onerous conditions, including shareholder consents, to hold a virtual-only meeting.
The Delaware legislature has enacted specific provisions in the Delaware General Corporation Law (DGCL) that have facilitated virtual shareholder meetings. In particular, Section 211 of the DGCL enables Delaware corporations to hold shareholder meetings solely by means of “remote communication.” Section 211 also allows shareholders to use remote communication to (1) participate, (2) be deemed present, and (3) vote at an annual shareholder meeting, “provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.”
Other than as pertains to proxies, the United States federal securities laws do not impose any requirements on companies for annual meetings. In addition, stock exchanges such as the NYSE require listed companies to hold annual meetings, but do not impose limitations on virtual shareholder meetings. NASDAQ permits the use of webcasts instead of, or in addition to, an in-person meeting, provided such webcasts are permissible under the relevant state law and shareholders have the opportunity to ask questions of management.
Bylaw Provisions Enabling Virtual Shareholder Meetings
In addition to selecting an appropriate vendor to provide the technology platform for a virtual shareholder meeting, a company would need to ensure that its governing documents permit virtual meetings. The bylaws of Delaware corporations in particular typically state that companies need to provide advance notice to shareholders of the time and place of a shareholder meeting. Even if the bylaws are flexible and, for example, allow shareholder meetings to be held anywhere in the United States or as may be designated in the meeting notice, the bylaws may still be too restrictive to allow for a virtual meeting. As a result, some Delaware corporations have added specific language to their bylaws to expressly permit virtual shareholder meetings.
For Delaware corporations, any amendments to bylaws necessary to enable a virtual shareholder meeting should generally be put in place on or prior to the record date, as Section 213 of the DGCL requires that the record date for an annual meeting may not precede the date upon which the resolution fixing the record date is adopted by the board of directors.
Planning and Logistics
Companies planning to do a virtual shareholder meeting should choose a technology platform vendor such as Broadridge or Computershare early in the planning process to be able to familiarize themselves with the platform and to ensure the meeting is free of technical glitches.
In the past, traditional in-person shareholder meetings were a critical venue for the discussion of corporate affairs. In light of developments in communications technology and social media, the channels for companies to engage with shareholders and for shareholders to express their views have diminished the utility of the in-person shareholder meeting. As a result, virtual-only shareholder meetings are becoming increasingly popular and offer a number of benefits for both shareholders and companies. However, to address and mitigate certain downsides and shareholder concerns, companies seeking to hold virtual-only meetings should strive to adhere to established best practices. In addition, companies seeking to hold virtual-only meetings should be mindful of corporate governance requirements and build the logistics of a virtual meeting into their meeting timeline.