Online shareholder meetings lower costs, but also interaction

New York

NOT one shareholder showed up at Intel's shareholder meeting last week. In person, at least.

Instead, Intel's annual meeting was entirely virtual. There was no in-person gathering site, the questions were submitted in advance, and management and the board made all their presentations online.

Virtual meetings are a growing phenomenon, but although technologically feasible, they are a bad idea.

In 2015, 90 companies used this method using Broadridge, a big provider of virtual meeting technology. In addition to Intel, GoPro, SeaWorld Entertainment, PayPal, Fitbit and Yelp have all held virtual shareholder meetings in the last year.

Companies are adopting this technology for a number of reasons. There are the obvious cost savings, because they do not have to pay for a location and serve food (however meagre, although some companies are known for their shareholder meeting spreads). And having a virtual meeting allows people to "attend" who would not otherwise want to make the trip. The company can also better track shareholder attendance and participation.

Perhaps more important, a virtual shareholder meeting allows the company to manage troublesome shareholders and their often uncomfortable questions. Some of this may provide a welcome limit on the time monopolised by corporate gadflies such as John Chevedden, James MacRitchie and William Steiner, who are responsible for a staggering 70 per cent of shareholder proposals. These individuals not only like to propose company action, they make a habit of haranguing directors at corporate meetings.

And who could forget Evelyn Davis. She made a living by selling subscriptions to her newsletter, and companies would buy these subscriptions to appease her and avoid her lengthy scoldings of management at annual meeting time.

Virtual meetings are also convenient when it comes to general protesters. No doubt SeaWorld was happy to avoid a possible protest by animal rights groups over its keeping of killer whales when it held its virtual shareholder meeting last year.

It's hard to blame a company for wanting to stop these practices, though the quirky shareholders make life more interesting.

But there are other things a company gains by eliminating in-person shareholder meetings - and that is limiting tough questions. Broadridge specifically states this advantage in its marketing materials: "Issuers can privately view and manage shareholder questions without broadcasting to other attendees."

This makes it clear that the virtual meeting raises troubling trends, a reason it is opposed by leading shareholder groups such as the Council of Institutional Investors and the California Public Employees' Retirement System.

The in-person shareholder meeting is the sole opportunity all shareholders have to meet and talk with management. Indeed, at many small and mid-size companies, the conversation continues as shareholders talk with management before and after the meeting. They also have the opportunity to ask questions that put management on the spot. These questions can directly influence what management thinks and says.

And in difficult situations, the repeated pushback of shareholders can make a difference. Robert Nardelli's conduct at the 2006 meeting of Home Depot shareholders represented a nadir for shareholder participation, and one that eventually led to Mr Nardelli's departure. Now, shareholders are expected to participate and be allowed to do so.

Corporate law has always endorsed this idea of give and take. In a famous decision, a Delaware court ruled that an annual meeting had to be held even if the shareholders could act by written consent to make sure that the actions passed.

"The annual meeting may in some instances be a bother to management, or even, though rarely, a strain, but in all events it provides a certain discipline and an occasion for interaction and participation of a kind," the court said.

To be sure, these meetings can be a pain, but even the haranguing can be a good thing, forcing management to confront their entrenched biases. The gadflies may be persistent, but they also may be right.

In an attempt to compromise on virtual meetings, the California State Teachers' Retirement System in 2012 issued a best practices guide for online meetings that recommended posting all of the questions asked to ensure that management received them. But one can question whether this fully fixes the problem when there is no in-person interaction.

Hybrid meetings that combine in-person and virtual elements seem less of a problem. These allow people to attend their meetings while also having a virtual component.

Management should also recognise that in-person shareholder meetings can be fun and a way for the company to build goodwill with its shareholders. Think about the extravaganza that is the Berkshire Hathaway meeting. Days of talking and showing off the company's products, including copious amounts of treats from Dairy Queen, a Berkshire Hathaway subsidiary. The Walt Disney Co's meeting is also known for highlighting the company's latest movie or ride. Even children can ask questions, including a recent interaction that led Disney's chief executive, Robert Iger, to give a private tour of Pixar to a child. Some companies are local legends where the entire town will gather. It is at these meetings that connections are made between the company and its shareholders.

It's here where perhaps the subtlest objection comes to virtual meetings. By forcing everything onto the Web, we lose the personal interaction. Everyone logs in and watches a preprogrammed set of questions and answers. And then everyone goes away. Management's worldview is reaffirmed in the 10 or so minutes it allows for questioning, and there is no engagement except with those investors who own a portion of shares large enough to personally meet with management. It's a modern world that is frightening in its disengagement. NYT