The directors & boards report: 2013 annual meeting survey: the annual meeting is rated a ho-hum tool for exercising shareholder relations and corporate democracy. An opportunity for digital technologies to come to its rescue?

• Author: Shaw, David
• Position: ANNUAL MEETING SURVEY

WHAT TO DO with that great, flawed, exercise in corporate democracy--the annual meeting? As our survey continues to show, the annual meeting is only rated by directors "somewhat important" in terms of providing effective corporate governance or shareholder relations, and this feeling seems to be echoed by the average number of shareholders who actually attend the meeting (91). As one director who responded to our survey noted, "You don't need the annual meeting--until you do need it to address a significant issue brought forward by an activist shareholder."

The use and abuse of the annual meeting by activists and corporate gadflies has long been cited as the reason for today's carefully scripted and vetted "vanilla" meetings, usually held in Nome, Alaska, or other easily accessible physical site, attended by only the most hardy--or conveniently located--shareholders.

But that only tells part of the story. Institutional shareholders, who represent more than half of the ownership of 39% of our respondents' companies, tend to not attend annual meetings (68% of our survey takers reported no institutional shareholder representation at the annual meeting.) "It's frustrating that institutional shareholders have so much unused voting power or are following 'advice.' We are losing the value of the individual shareholder," wrote one director.

As another director commented, "There are enough opportunities throughout the year for shareholders to talk to management via quarterly earnings calls, investor conferences, non-deal road shows, etc. I think that is why attendance at annual meetings by institutional investors is so low. If an investor wants to talk to the company, he doesn't have to wait for the annual meeting but just call the company and ask for a phone conference or in-person meeting."

And that affirms the comments we received on how the annual meeting could be improved, most of which pointed to eliminating the annual meeting itself as the primary shareholder communications/democratic exercise. Many directors suggested greater on-going communication with investors throughout the year, leveraging digital technology such as webcasts and web portals to encourage greater attendance and participation, and disallowing proxy voting. But in order for this to happen effectively, companies--and the SEC--will need to take a close look at disclosure and incorporation rules. This isn't likely to happen soon; as a result, the annual meeting will most...