On Governance is a series of guest blog posts from corporate governance thought leaders. The series, which is curated by the Governance Center research team, is meant to serve as a way to spark discussion on some of the most important corporate governance issues.

In today’s remote business world, video conference calls and internal business Skype networks have become as common as landline phones in American corporate offices. But, does having such technology mean corporate management and boards should replace in-person annual shareholder meetings with virtual ones? Or should hybrid (in-person/virtual) meetings be adopted?

Over the past six years, some public companies have started using a platform offered by Broadridge Financial Solutions – the shareholder communications and proxy voting processor – that allows both virtual-only and hybrid annual shareholder meetings. From 2010-2016, the number of online or telephonic annual meetings grew more than 700 percent to 155 from 19. In 2017, the number of companies holding virtual annual meetings, of which 90 percent were virtual-only, was 236. Of those, only 3 percent used live video; the rest used live audio. This year, Broadridge expects to host at least 300 virtual-only or hybrid meetings.

Broadridge reports that holding such virtual meetings can cut down on the costs of in-person annual meetings that are generally sparsely attended. And the online validation technology that is used allows for shareholders to participate and vote online during the meeting.

Is there enough of a difference between a hybrid meeting and a virtual-only meeting to abandon the latter? Since there are more than 10,000 public companies, and only about 300 are currently using the technology, an argument could be made that there is not enough of a sample to make that decision.

“I don’t think we’ve seen any evidence of management and boards using this technology to entrench themselves and shut out investors,” Douglas Chia, executive director of The Conference Board Governance Center, said during a recent Inside America’s Boardrooms webcast.

However, an experiment by two Boston Globe reporters last year showed a significant difference in the robustness and length of an in-person annual meeting by State Street Corp., a 225-year-old financial services company with more than $2.8 trillion in assets under management in 2017, and a hybrid meeting by Wayfair Inc., a 16-year-old online home furnishing company with $4.7 billion in revenue in 2017. The article showed that about 100 people showed up to the State Street meeting, while 11 people were at Wayfair’s meeting and six signed on to the audio-only webcast. It also showed that the State Street meeting lasted 40 minutes, including a Q&A, while the Wayfair meeting lasted 11 minutes, including three minutes of silence while votes were tabulated and there was no Q&A.

My observation of 15 virtual annual meetings, of which three were hybrid, showed that the average time of the meetings was 32 minutes, including five meetings that finished in under 20 minutes and three in under 10 minutes. Just as the Boston Globe article noted, I also noticed that most of the meetings had similar boiler plate language, such as “The preliminary vote count indicates there are sufficient votes to elect the nominees for director, ratify _______ as the public accounting firm ... and to approve on an advisory basis the compensation of executive officers.”

The New York City Comptroller’s Office and the Council of Institutional Investors (CII) believe a virtual-only meeting set-up is not fair to all shareholders.

In 2017, The New York City Comptroller’s Office, which oversees the city’s $170 billion in pension funds, sent letters to 17 of its portfolio companies that held such meetings in 2016 urging them to abandon the practice or at least hold hybrid meetings that allows for in-person meetings that are available on webcast. 

“It’s one of the great markers of American enterprise – whether you own one share or one million, you can speak at a company’s annual meeting,” Comptroller Scott Stringer said last year when he launched the letter campaign. “Except now, in this interconnected world, companies are using technological tools to whittle away at investors’ rights and hide from accountability.”

At Stringer’s recommendation, the trustees of the five city pension funds approved a policy that the pension funds vote against directors sitting on companies’ governance committees. In 2018, Stringer extended that campaign to all of the pension funds’ portfolio companies. The amended guideline states that is the expectation of the pension funds that companies hold “in?person” annual meetings and only hold “virtual” meetings to supplement, not replace, in?person meetings.

While the NYC campaign is nascent, there has been some progress as two of the companies it targeted – Conoco Phillips and CSRA – have reverted to in-person meetings after investor pressure.

CII made the following observations after its representatives viewed some of the virtual meetings last year:

• Shareholders continue to deserve the choiceto attend their meetings in-person.
• Investors expect virtual meeting technology to enhance the ease of attendance and the quality of the meeting without harming its integrity, and with some kind of access to independent board members.
• Companies permitting virtual attendance should provide a shareholder dashboard that includes an audio and video feed of all key company representatives in attendance, access to a continuously updated list of all shareholder questions, submitted both before and during the meeting, an option to virtually “approach the dais” after the meeting’s formal conclusion to interact with key company attendees and access to a list of registered shareholder attendees and the number of shares represented at the meeting and preliminary vote tallies, if viewed by the company.

 When asked by TK Kerstetter, CEO of Boardroom Resources and host of Inside America’s Boardrooms, what he thought about investors being upset about the implementation of virtual-only meetings, Chia was open to giving it a try. “It’s one of those instances of ‘Let’s give it a chance and let’s see how it actually plays out’ before killing the idea,” he said. “The problem is there are bad actors who get the most attention and draw such a strong reaction.”

“We recognize that virtual meeting technology offers benefits, including the potential to significantly increase shareholder participation,” Kenneth Bertsch, CII executive director, said in a June 8, 2017 letter to the Broadridge Committee for Best Practices for Annual Shareholder Meetings. “However, those benefits need not come (nor should they come) at the expense of other important aspects of the meeting.”

What will be interesting to see is how far companies will go in pushing for virtual-only annual meetings in the near future. The SEC has already shown that it will not act against companies that omit a shareholder proposal calling for in-person or at least hybrid annual meetings by issuing “no-action” letters. The SEC made the decisions on the grounds that the “determination of whether to hold annual meetings in person” is related to the company’s ordinary business operations.

I’ll guess we’ll have to wait and see what happens as this proxy season gears up.

The views presented on the Governance Center Blog are not the official views of The Conference Board or the Governance Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, or others associated with The Conference Board or the Governance Center.