Is There Virtue in Virtual Annual Meetings?

The February 2020 issue of IR focus discussed best practices in management information circulars and noted, in passing, that proxies play a role in gaining support for public companies wishing to stage virtual AGMs (i.e. annual meetings hosted by electronic means, such as on the Internet). At the time, we debated even mentioning this because virtual annual meetings were a rarity in Canada.

What a difference a few months and COVID-19 have made. Virtual-only AGMs became the norm in Canada this spring and may continue to be a fixture, depending on the length and severity of the pandemic.

As a result, IR focus contacted IROs to ask about their experiences with virtual meetings this year, in order to develop a body of information that will help in the future.

The Good

IROs interviewed suggested they were ‘happy’ to have completed their first virtual AGMs. This sense of relief is understandable since most Canadian companies had never tried the virtual-only format and C-suite executives and directors were concerned about the potential for technological snafus, particularly with company participants frequently not being in the same room as one another. These fears were legitimate but laid to rest by the actual experience.

Those interviewed for this article indicated that the platform they used was more straightforward and intuitive than they had expected. It was, in the words of one IRO, “a glorified webcast” with a computer dashboard that was “no more difficult to master than what we typically use for our quarterly analyst calls.”

Most IROs were of the view that hosting the virtual meeting was far easier than staging a physical meeting at a local hotel or conference centre. As one said: “There was no travel to book, no catering to arrange, no annual reports to schlep to the venue; based on our experience, we’re thinking of making virtual our standard for the future.”

Recommendations provided by those we interviewed included:

• book your virtual meeting provider early as there are currently only a limited number that are able to provide the necessary technology (platforms must, depending on the applicable legal requirements, include the means to enable electronic voting, balloting and quorum counting and ensure equal shareholder participation);
• include a virtual AGM user guide on your website to help shareholders;
• work with your lawyers/transfer agents to adjust the formal business script so that it reflects different procedures used in virtual meetings;
• simplify business of the meeting proceedings where possible after consulting with legal counsel (e.g. by eliminating the formality of having motions seconded when the item of business was specified in the proxy circular);
• keep scripts short and to the point, recognizing that the audience has a lower tolerance for long presentations given in a virtual format;
• organize a trial run the day before the actual event (i.e. not too far in advance of the AGM) so that operating instructions will not be forgotten;
• use only hard-wired Internet and phone connections (Wi-Fi is considered too risky);
• assign a backup Chairperson who is in a different location in case the technology fails;
• provide the Chairperson with technology support throughout the meeting even if it means gathering a small group of individuals together in the same room (support in this case means assistance in using the meeting dashboard, which is difficult to do while the Chair reads prepared remarks);
• project the dashboard on a large screen so that it can be easily viewed by the speakers, assuming they are in the same room while presenting;
• appoint a message moderator (the point person assigned to review shareholder questions/comments in real time) who is quick on his/her feet and able to accurately synthesize questions – this a role ideally suited to an IRO;
• encourage the meeting Chair to give shareholders ample time to formulate their questions, as it does take time to type questions in the message window;
• take the opportunity given by the supplier to include company branding and a personalized welcome message on the dashboard, which displays the meeting name and the attendee name; and
• decide in advance if you will allow guests to participate, or only registered shareholders/proxyholders.

As for shareholder reaction, the feedback was positive, although as one IRO explained, “how could it be anything but? There was no way we could host a meeting in person and every shareholder knew it. The fact that we went to the trouble of replicating every aspect of a normal physical meeting was certainly appreciated by shareholders we spoke to after the fact.”

Many companies sold the merits of their virtual AGMs on the basis that they were accessible to shareholders, including employee shareholders, “around the world.” While this is true and a good argument in favour of such meetings, those IROs we spoke to indicated that their shareholders “around the world” did not actually participate even though they could do so from the comfort of their own homes or on mobile devices.

The Bad

One knock against virtual AGMs is that they can be used to mute the voices of dissenting shareholders and prohibit directors from being held to account. This criticism has been levelled many times against companies that use the technology, and perhaps with reason.

As noted, virtual AGM platforms require shareholders to enter their questions in writing using a message portal. Depending on the virtual platform settings used to moderate Q&A, queries are seen only by the company and only the company knows which questions were ignored. In the minds of some shareholders, this ‘off switch’ gives the company the power it does not have at a physical meeting when all voices are heard and dissenting shareholders can spontaneously collaborate. Critics say the ability to suppress questions is tantamount to censorship. While this may be an exaggeration, the technology places considerable power in the hands of the chairperson. It does not have to be this way.

The technology underlying virtual meetings provides the ability to ‘autopublish’ all incoming shareholder messages, for 100% transparency. This year’s reality is that companies did not opt to use this feature. According to the leading provider of virtual AGM technology: “After doing a few hundred shareholder meetings this past spring, we have not seen any companies that publish shareholder questions for all to see in the app.”

Granted, some shareholder questions/comments may not be worth publicizing due to inappropriate language, but aside from that, shareholder rights advocates are no doubt of the view that all other questions/comments should be made public. This has the potential to become an issue going forward for those who see the suppression of appropriate questions/comments as proof that virtual AGMs reduce a Board’s accountability to shareholders.

Interestingly, the fact that companies had the ability to ignore shareholder questions was somewhat of a moot point this past spring. That’s because the majority of companies hosting virtual AGMs in Canada received very few shareholder questions. There were notable exceptions. Oil and gas companies reported that their shareholders were quite vocal, for reasons that included the suspension of dividends and ESG factors. Banks, with large and active retail shareholder groups, also received a good volume of questions. The CFO of one bank thought that his shareholders were emboldened by not having to stand in front of a large audience to voice their questions.

It’s not possible to tell why shareholders are often silent but it does cause executives to question the value of devoting time to AGMs (see “The Ugly” below).

A related downside of virtual-only AGMs is that they create a deficiency in personal connection between companies and their shareholders. Glass Lewis in its 2020 Proxy Paper™ Guidelines made this very point: “virtual-only meetings have the potential to curb the ability of a company’s shareholders to meaningfully communicate with the company’s management.”

IROs we spoke to acknowledged that this was, in fact, the case. In the words of one: “Maybe I’m old school but traditionally our meetings were an opportunity for our Board and executives to mingle with shareholders after the fact and that interaction was lost.”

This year, because of COVID-19, nothing could be done about this deficiency. Some IROs also said the lack of visual connection between company and shareholder did not help matters. One IRO explained it this way: “A pretty large percentage of communication takes place in nonverbal or paraverbal ways and when you can’t see the whites of someone’s eyes, that connection doesn’t exist.”

Zoom-based virtual AGM technology does make it possible for executives to turn on their webcams to broadcast themselves reading their scripts and answering questions. While a few companies did use this feature, the majority opted to keep their meetings audio only (except for the presence of a slide deck). For those executives who relied on home webcams, image quality was uneven, due to lighting, camera position and Internet streaming speed. A basic tutorial in videography would be advisable for anyone contemplating the webcam approach. In a few cases, executives hired an AV team to take care of technical issues.

The Ugly

In recent years, some executives have treated the AGM as a check-the-box exercise. As one CEO interviewed for this article explained: “Annual meetings as an investor communications exercise have been totally devalued by the availability of information and accessibility of management to the point that presentations to shareholders are simply a waste of time.” This view is reinforced when executives find that meeting attendance is sparce and is comprised largely of employees and investment bankers.

The virtualization of AGMs did little to change this attitude. Some companies decided against providing even the most basic management presentation on the basis that “no one is listening,” to quote one IRO. For these executives, the virtual AGM fit perfectly with their desire to spend little time preparing – no doubt much to the chagrin of their IROs. As one IR practitioner said: “We typically look to the AGM as the catalyst to refresh our investor deck, see how it plays with shareholders and condition our executives to use it. The virtual AGM served none of those purposes and I think one reason is that it’s easier to skate through a virtual meeting than a physical one where there is the potential for embarrassment in front of a live crowd.”

A basic tenet of IR is to provide shareholders with “publicly available information that facilitates knowledgeable investment decisions,” to quote CIRI’s Guide to Developing an Investor Relations Program. For some companies, the AGM is not considered the place to facilitate such knowledge. It is hard to argue with executives who see AGMs as nothing more than a box to check, particularly since most voting on corporate resolutions happens before the meeting even begins, even though voting on resolutions is enabled in real time through virtual interfaces.

Notwithstanding that stakeholder engagement through a proxy is not the same as actual engagement, IROs agreed that what is important is the development of the Management Information Circular. It is a driver of voting decisions and a key tool to facilitate knowledge. IR focus reviewed best practices in MICs in the February issue.

The Future

Many companies have now experienced their first taste of the virtual-only AGM and liked it enough to consider eliminating physical meetings in future. If your company is of this mindset, it is worth noting that proxy advisors and shareholder rights’ advocates are now taking a harder line on virtual meeting practices.

Glass Lewis, for example, said it “took into account” the extenuating circumstances of the COVID-19 pandemic “when applying our policy on virtual-only shareholder meetings” for the duration of the 2020 proxy season (a period it defined as March 1-June 30, 2020.) However, Glass Lewis said that going forward it will “generally recommend voting against” directors of a governance committee “where the Board is planning to hold a virtual-only shareholder meeting and the company does not provide” disclosure that is robust enough to assure “shareholders that they will be afforded the same rights and opportunities to participate as they would at an in-person meeting.”

Hybrid meetings, on the other hand, which provide shareholders with both virtual and physical means of participating, are generally viewed in a positive light. Such meetings will become possible to host assuming COVID-19 is either eradicated or current restrictions on physical meeting attendance are lifted or modified.

If you plan to host a virtual-only AGM in future, be sure to use your MIC to:

• describe your policy for addressing shareholder questions, including prohibitions, if any, on recognizing questions received, and procedures, if any, for posting Q&A on your website after the meeting; and
• discuss how you are minimizing technical and logistical issues for shareholders.  

From there, it would be advisable to post either annual meeting minutes or a full recording of the meeting. This year, RBC did both (see link below). If some shareholder questions went unanswered, the recommended practice is to display those questions and management/Board responses on the corporate website following the meeting. An environmental scan showed no evidence that Canadian public companies that held their AGMs this spring followed this practice.

Bottom Line

Is there virtue in virtual AGMs? This year, the answer is yes, as they served an important purpose. If the gradual removal of restrictions on meeting attendance continues, there may not be the same justification for using them next year as the sole means of enabling the manifestation of shareholder democracy. In fact, in its pronouncements on the topic, ISS encouraged companies to return to physical or hybrid meetings “as soon as practicable.”

If your company plans to make the virtual AGM a permanent fixture, expect to see proxy advisory companies and activist shareholders looking more closely – and less favourably – at your practices, and potentially voting against you next year. It’s also likely that as shareholders become more accustomed to virtual meeting proceedings they will use the anonymity provided by the messaging application to ask more questions and take more confrontational approaches than they would in a room full of others.

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