Virtual Shareholder Meetings Update: Considerations for boards.

• Author: Allen, Claudia H.
• Position: ON THE GOVERNANCE AGENDA

In the current age of digital transformation, moving from a physical to an electronic meeting of shareholders seems natural. However, virtual-only annual meetings--shareholder meetings held solely online--remain controversial.

For example, when only a minority of directors attended the 2018 virtual-only meetings of two large-cap companies, one of which included six shareholder proposals, critics argued that virtual technology was being used to limit shareholder engagement with the board.

Accordingly, boards considering virtual-only meetings should take into account a company's specific circumstances, the views of shareholders and the current debate, including issues of fairness and transparency.

Key arguments from opponents are that such meetings eliminate face-to-face interaction with the board and management and could be structured to limit shareholder participation--for example, allowing a corporation to cherry-pick questions posed or limiting questions to those submitted in advance of the meeting.

Institutional Shareholder Services (ISS), which surveyed investor sentiment on virtual-only meetings when updating its voting policies for 2018, has not yet adopted a formal U.S. policy. In Europe, however, ISS supports hybrid meetings (a combination of a virtual and physical meeting) and oppose virtual-only meetings.

Beginning in 2019, Glass Lewis will recommend voting against governance committees at companies planning to hold virtual-only meetings unless the company provides robust disclosure assuring the same participation rights and opportunities as in-person meetings.

The Council of Institutional Investors maintains that virtual meetings should only be used to "supplement" traditional in-person meetings, and is considering a policy amendment under which any shareholder who wants to be in the physical room from which a chair conducts a virtual-only meeting the choice to do so.

Taking a more aggressive stance, The New York City Comptroller announced that the NYC Pension

Funds would vote against directors on governance committees at companies holding virtual-only meetings during 2018.

From the company perspective, virtual-only meetings may be attractive for uncontested meetings, since few shareholders typically attend, and such meetings are often brief and pro forma. Virtual-only meetings are also less costly than in-person meetings (since companies need not rent space or incur security and similar expenses), and allow more retail and...