A Hitchhiker’s Guide to Virtual Annual Meetings: 2020 Year in Review

Before beginning, I should let readers know that I have sources noted in a Word version of this post but cannot insert footnotes or endnotes in this post. If you are interested in the citations, please leave a comment.

Hello Earth: Introduction

2020 saw substantial changes in how annual shareholder meetings are conducted. In 2019, only a few hundred companies hosted annual meetings online, some with and others without an in-person component ("hybrid annual meetings" and "virtual annual meetings", respectively). As of May 13, 2020, over 2, 200 companies had already held virtual annual meetings.

The use of virtual annual meetings exploded in 2020 because of corporations' rapid response to the novel coronavirus ("COVID-19"). It was impossible to convene physically because of the public health risk and legal stay-at-home orders, and yet corporations are required by law to host annual meetings. Companies responded quickly to the changed circumstance by embracing information technology that some influential shareholder and corporate governance activists warned could decrease management responsiveness to shareholders and, in worst case scenarios, disenfranchise shareholders.

For the first time, thousands of corporations experimented with virtual annual meetings. There have been critical judgments about the quality of these meetings. However, for the most part criticism has been muted because companies adopted the virtual annual meeting format on a rushed timeline, in unusual circumstances, and without the benefit of long-standing or widespread experience to draw from.

Future scrutiny of virtual annual meetings might not be so forgiving. Regardless of circumstances - whether corporations must once again embrace virtual annual meetings in 2021 or they may choose to keep using digital platforms - companies' deployment of virtual annual meeting tools will not be judged against a robust set of peers and through shareholders' personal experience. If some corporations incorporate online meeting tools effectively into shareholder meetings, many other companies may face pressure to expand their use of digital tools to increase access to and participation in shareholder meetings.

Therefore, now is an opportune time to review corporations' experience, with 2020's tidal wave of virtual annual meetings fresh in mind and predictability of increased scrutiny in the future, and spotlight important lessons.

This article proceeds as follows. First, I review the growth in adoption of virtual annual meetings in the two decades after the year 2000. Second, I briefly recap the explosion in virtual annual meetings this past proxy season. Third, I posit that virtual annual meetings can be either good or bad for shareholders and corporations, and that the specifics of how each company implements its virtual annual meeting are of paramount importance. Fourth, I review the most consequential practical decisions that a board and management must consider in thinking about a virtual annual meeting. I then conclude.

In the Beginning: Steady Growth and Adoption of Virtual Annual Meetings

The idea of digitizing shareholder meetings percolated in the late 20th century and slowly spread from theory into practice over the first two decades of the 2000s. The first sign of change came in 2000 when Delaware amended its corporate law statute to allow virtual shareholder meetings. Then, 9 years passed before any company held a virtual annual meeting. In 2009, Intel Corporation held the first virtual annual meeting and three corporations held hybrid annual meetings.

As shown in the chart below, adoption increased steadily from there:

More recently, in 2018 and 2019, 285 and 326 companies used Broadridge Financial Solutions, Inc. ("Broadridge") to host virtual or hybrid shareholder meetings.

Corporations in almost every state are allowed to host virtual or hybrid shareholder meetings. Currently, 13 states allow hybrid annual meetings and 31 state corporate law statutes allow both virtual and hybrid annual meetings.

By the 2019 proxy season all kinds of corporations hosted virtual or hybrid annual meetings. That year, 231 companies in the Russell 3000 index hosted virtual annual meetings, 24 Russell 3000 companies held hybrid annual meetings, and 11 S&P 100 and 38 S&P 500 companies held virtual or hybrid annual meetings. Of 150 companies in Wilson Sonsini's 2019 Silicon Valley 150 Corporate Governance Report, 42 held virtual annual meeting and 11 held hybrid annual meetings. Unsurprisingly, communications services and information technology companies held more virtual and hybrid meetings than their peers in other industries. However, healthcare, consumer goods, and industrial companies also hosted a number of virtual annual or hybrid meetings in 2019. Adoption of virtual meetings technology also spread across sectors, with utilities, real estate, energy, and financial companies hosting virtual or hybrid meetings in 2019.

The Big Bang: COVID-19 Forces Corporations to Host Virtual Annual Meetings

Even before the 2020 proxy season, virtual annual meetings were clearly trending and, regardless of what any market participants thought about virtual meetings, COVID-19 forced everyone to react. 11 states that required either entirely physical shareholder meetings or a physical meeting component issued emergency orders allowing virtual annual meetings. The Securities and Exchange Commission ("SEC") issued guidance for companies conducting virtual annual meetings. Proxy advisory firms updated their guidance in light of the pandemic. Law firms worked diligently to help clients navigate the changing landscape. By May 13, over 2,200 U.S. corporations, about 60% of all U.S. listed firms, had held virtual annual meetings.

Experiences of these rushed virtual annual meetings varied. Some meetings, such as those of Microsoft and General Motors, lasted for an hour, opened with high-quality marketing videos, and included a live video stream into the meeting. Others, such as Danaher's meeting, were audio-only and ended after 13 minutes. TEGNA Inc. navigated the first all-virtual proxy contest and the management slate was elected. Wells Fargo announced that they had 1,500 attendees, 75% of whom were shareholders. Most meetings included normal uncontested business and had few attendees.

Many board members now face two questions. First, should their corporation use a virtual platform next year? And, second, if they host the meeting virtually, by choice or otherwise, how do they integrate the online component?

The answers to these questions are intimately linked with how the corporation considers implementing the virtual meeting, which is addressed in detail below. However, the decision cannot hinge on any strongly-held general belief about whether virtual annual meetings are good or bad for shareholders or corporation.

Lost in Space: Virtual Annual Meetings can be Good or Bad for Shareholders

Virtual annual meetings' impact on board or management engagement with shareholders and on shareholder power is, as of now, unsettled. Corporations that held virtual annual meetings before COVID-19 had market-standard corporate governance practices in place. Virtual meetings can be, and have been, implemented to enhance, or at least no diminish, access and voice. Finally, virtual meetings reduce the direct costs of annual shareholder meetings for both companies and shareholders.

There is little evidence that companies that held virtual or hybrid annual meetings before COVID-19 systematically ignored best governance practices. The following chart, produced by ISS Analytics, compares the prevalence of certain governance practices among companies that held virtual annual meetings versus those that held physical annual meetings in the 2019 proxy season:

Companies that held virtual annual meetings were more likely to also have unequal voting rights and a classified board structure but other measures show parity. As mentioned, technology companies are leaders in hosting virtual annual meetings and, according to Marie Buellingen of ISS Analytics, these companies "are known for having a higher concentration of [unequal voting rights and classified board] governance structures." As Ms. Buellingen summarizes, "governance structures and practices appear comparable for both virtual and physical meeting groups."

Likewise, there is little evidence that companies that held virtual or hybrid annual meetings before COVID-19 used the online format to reduce shareholder voice in the context of the shareholder meeting. There have been problems with past virtual annual meetings and complaints about them are well documented. For example, Symantec's first virtual annual meeting, in 2010, was beset by complaints that shareholder questions went unanswered, directors did not attend either in-person or virtually and were not identified as absent, and the meeting was audio-only. In light of these concerns, which persist, but without evidence of a fundamental or systemic problem with virtual annual meetings, neither Glass Lewis nor Institutional Shareholder Services categorically recommend a vote against directors at corporations that hold virtual annual meetings - instead opting to look at the format of and disclosure about the meeting.

Every virtual annual meeting is different, and corporations can adopt the components that are appropriate for engagement with their shareholders. Some points of consideration were already mentioned - whether the meeting includes video or is audio-only; what elements a company includes beyond legally mandated business; and who may attend the meeting. Other points boards show consider, and which will be addressed in more depth below, include whether the company will entertain live questions or only previously submitted questions; whether questions submitted before and at the meeting will be posted live for all attendees to see; who at the company, among its guests (such as auditors), and shareholders have the ability to speak; how and when do people with the ability to speak get to exercise that right; how shareholders verify their ownership and thus unlock their right to vote; and whether the meeting should be archived on the company's website after the meeting is over. Perhaps the most salient question for a company considering whether to host a virtual annual meeting is - which providers can host the type of virtual meeting we want? Broadridge is the most widely-used virtual meeting provider. However, there are several competitors and each has varying capabilities.

Even the most elaborate virtual annual meeting can be expected to reduce costs compared to physical meetings. There is no need to reserve physical space for a virtual annual meeting. No food or souvenirs are available for attendees. Travel costs for company attendees fall dramatically. The impact on security costs are more ambiguous. Physical security is unnecessary but cybersecurity risk increases, and contentious virtual meetings may face cyber-attacks, just a contentious physical meetings experience protests and disruptions.

Relatedly, virtual meetings remove the geographical barriers of physical meetings. Anybody with a phone or internet connection can access virtual meetings, bringing attendance costs for anyone outside the immediate area of the meeting from exorbitantly expensive to essentially zero. Even for shareholders with the financial means to attend meetings in-person, virtual components allow them to attend multiple meetings that might otherwise be impossible to attend, such as meetings held in different cities on the same day.

That said, there are some clear drawbacks to moving from a physical to a virtual annual meeting that are difficult to remedy. Some shareholders do not have internet access and therefore cannot participate in a virtual annual meeting. Some shareholders who have the technical capacity to connect online may not have the personal capability to use the digital tools as they might wish. Shareholders miss an opportunity for personal interaction with the board and management when meetings go virtual. And broader stakeholders will find it harder to use annual meetings as a platform to be seen and heard by corporate constituencies.

However, most concerns about virtual annual meetings can be adequately addressed through practical technological deployment.

Structure Formation: Important Virtual Annual Meeting Considerations

Boards of Delaware corporations have plenary statutory authority to adopt procedures appropriate for their corporation. The challenge is to adopt good procedures.

Boards should consider who will be allowed to attend the meeting and how they log into the meeting. In a physical meeting, attendance is limited by space and check-in procedures help track attendees. In a virtual meeting attendance may be limited by technological capacity, and there must be a mechanism to verify shareholders and track non-shareholder attendees. Some beneficial owners, in particular, have had a difficult time verifying that they are shareholders when logging into virtual annual meetings. For exmpale, Doug Chia chronicled his difficulties getting the correct password to log into a virtual annual meeting.

Convoluted log-in procedures often arise because technology is grafted onto the arcane proxy plumbing system. Board should weigh the risk that people struggle to log into the company's virtual annual meeting and consider how much technical support to provide to those who need help. Standard practice is to describe the log-in procedures in the meeting notice and proxy, and to provide a help webpage or hotline on the day of the meeting. A hotline may make more sense when there are more attendees, the meeting is shorter, and the log-in procedure is more complex, since the risk and urgency of log-in problems increase in those scenarios.

Technical issues can arise from more than just shareholders. Companies should have a contingency plan in place to inform attendees, if the platform fails that the issue is getting fixed. It may be necessary to postpone the meeting if the technological issue cannot be resolved promptly. If more than one person is slated to speak at a virtual annual meeting, the speakers should be coordinated through the script and technologically. If one person experiences a lag, perhaps of a slow network connection, they may speak over others and cause confusion. Other people, such as auditors, may be unlikely to speak and yet still need the ability to respond to questions. Companies should think about how to manage multiple people with hot microphones. Additionally, boards should consider clarifying the chain of command to chair a meeting. A company's charter or bylaws often specify a person with primary responsibility for running the annual meeting. It should be clear that if that person has technical trouble during the meeting, someone else has the authority and is ready to assume the chairperson role.

In the background of any virtual annual meeting is cybersecurity risk. Companies should audit the cybersecurity capabilities of their virtual annual meeting provider and a company's internal information technology team should do an independent assessment of the risks posed by a virtual annual meeting. There are a variety of risks to consider, including the possibility that attendees' personal information may be stolen, and that votes on controversial proposals might invite hack attempts or denial-of-service attacks.

Once the meeting begins, levels of interaction between the board, management, and attendees, varies widely. Some meetings include video showing the speakers and other company personnel while others are only audio. If a meeting is audio-only, the Board should consider whether to announce which company representatives are attending the meeting, and how many other attendees are present.

Standard practice allows shareholders to submit questions during the meeting. Practice varies with respect to whether questions are posted live for all attendees to see, or whether they are directed to company personnel only. Shareholder advocates suggest that companies practice transparency, either posting questions live or on their websites after the meeting, along with answers. A middle ground might be screening shareholder questions based on pre-announced rules and publishing proper questions. Few companies allow shareholders to ask questions orally but, if your company does allow phone-in questions, there should be clearly established rules of order, including which questioners are recognized, in what order, how much time they get to ask a question, whether they can ask follow-ups, and what sorts of questions or behavior will terminate their call. Technology can help define the process. For example, certain services mute questioners until it is their turn to speak and automatically inform them of their position in line as questions progress.

Some boards will need to consider how to structure a virtual annual meeting to accommodate a shareholder proposal. At the meeting, standard practice is to give proponents 2 to 3 minutes, although some companies allow more time. This past year, a Wells Fargo proponent used their time to share a pre-recorded statement. Normally, proponents need to attend the annual meeting or their proposal can be excluded. Shareholders may try to push the boundaries of attendance and advocacy to get proposals included in more proxies.

Boards should think carefully about the length of time voting is open during a virtual annual meeting. Most meetings are fairly short - 22 minutes or less - and the polls are open for online voting during a fraction of that time. Shareholders could face a series of obstacles to voting promptly, not least a slow connection, that may lead to their vote getting inadvertently omitted. Polls should remain open for at least a few minutes, and companies should consider how shareholders can verify that their votes were counted, and whether to provide a way for shareholders to flag that their votes were not successfully submitted at the virtual annual meeting.

All of the above consideration become even more important in a proxy contest. The 2020 proxy season included the first contested virtual annual meeting, at TEGNA Inc. Dissidents will want time to present their case and a platform that allows back-and-forth with the company. The parties should agree on a process for the dissident to request and for the company to consider accommodations during the meeting. Each party may require separate virtual 'rooms' to coordinate among themselves, and cybersecurity to ensure those rooms are not compromised will be of the utmost importance. Boards will need to consider how to coordinate with the dissident and the inspector of elections to ensure that votes are received promptly and that the count can be verified. The parties should begin coordinating early to avoid unexpected and irresolvable issues as the meeting approaches.

Finally, after the meeting is over, boards should consider whether to archive the meeting on the company website. Doing so is not legally required, but shareholder advocates promote archiving meetings for a reasonable amount of time or at least one year.

Deep Thought: Conclusion

Although virtual meetings are not one-size-fits-all, 2020 precipitated significant change in the market's experience with virtual annual meetings, and I expect that pressure will increase substantially for companies to adopt best practices or explain their decisions. In thinking through how to structure a virtual annual meeting, a board should consider the company's particular circumstances. At one end of the spectrum, if all proposals are routine and uncontroversial, and shareholders are not expected to attend, perhaps a short audio-only meeting is sufficient. However, as a company and its meetings' visibility increase, a board will want to consider whether and how to add features and create an inclusive virtual meeting space. There are still lots of unresolved questions about how to best use virtual annual meetings. Reflecting upon the unique 2020 proxy season will help us shape better governance in the future.