This spring, Virginia Gov. Terry McAuliffe approved legislation passed by the General Assembly permitting Virginia corporations to hold virtual-only shareholder meetings, beginning July 1, 2017. When the new law goes into effect, roughly half of all U.S. jurisdictions will have adopted provisions allowing virtual-only shareholder meetings.
The 2017 legislation amends prior Virginia law that permitted only physical or hybrid virtual/physical meetings. The new law states that, unless the governing documents of the corporation require otherwise, a Virginia corporation may hold an annual or special shareholder meeting exclusively “by means of remote communication.” The law allows companies to use various means of remote communication, provided they meet certain minimum statutory requirements.
Quite a few potential benefits to virtual-only meetings would make them attractive to corporations in jurisdictions that permit such meetings. These benefits may be most noticeable at public companies with large and geographically dispersed shareholder constituencies, but are also available to corporations with smaller shareholder bases.
- The company can reduce or eliminate many costs associated with hosting physical meetings, including:
- reserving a physical space,
- paying for security, and
- devoting significant time and human resources toward planning and logistics.
- The company can increase the opportunity for, and quality of, shareholder participation by:
- eliminating travel costs for shareholders,
- allowing all shareholders to participate, rather than having a set number of attendees, and
- streamlining the question-and-answer portion of the meeting.
- The company can conduct a more orderly meeting.
- The company can conduct shareholder meetings in a manner consistent with the technology-friendly way it conducts business generally.
The trend toward allowing such meetings began in 2000, when Delaware amended its General Corporation Law to permit them. Companies should carefully consider the benefits, costs and shareholder concerns before adopting virtual-only meetings. As more companies around the country have moved to holding virtual-only meetings in recent years, certain shareholders known for being active in the governance arena — including the California Public Employees’ Retirement System, New York City Comptroller Scott Stringer and Walden Asset Management — have been vocal in opposing these meetings. The Council of Institutional Investors has also expressed concerns, although it concedes the benefits of an appropriately conducted hybrid physical/virtual meeting. These investors fear that companies will use virtual meetings as a way to censor or manipulate difficult questions from shareholders or otherwise limit shareholder engagement with management, at what is likely the only opportunity for shareholders to interact in person with — and question — a company’s management and directors.
Some concerned shareholders of public companies have attempted to use U.S. Securities and Exchange Commission (SEC) rules — that allow certain shareholder proposals to be presented to shareholder meetings via the company’s proxy materials — to make proposals barring virtual-only meetings. However, the SEC Division of Corporation Finance has, to date, permitted companies that receive shareholder proposals to initiate or restore in-person meetings to exclude these proposals on the basis that they relate to companies’ ordinary business operations.
Consequently, companies considering a virtual-only annual or special meeting should be conscious of the myriad benefits such meetings can provide, while being aware of concerns expressed by shareholders. In addition, companies that choose to conduct such meetings would be well-served by documenting the time and resources saved by switching to a virtual meeting and by providing mechanisms to facilitate shareholder engagement and protect against any censorship of shareholder questions. In an age when cybersecurity concerns are center stage, companies will also want to make sure adequate cyber safeguards are in place so that companies and their shareholders are protected when engaging in this new type of online activity.
- Companies should consider the benefits — and potential shareholder concerns — associated with adopting virtual-only meetings in the context of their specific shareholder populations and meeting needs.
- Companies should determine their costs of setting up virtual meetings and how best to structure meetings to reduce shareholder concerns.
- Companies should look for other ways to maintain in-person, or direct, engagement with shareholders if they adopt virtual-only meetings.