As we enter April, proxy season kicks off with the majority of public companies starting to host their annual general meetings (AGMs). Amidst COVID-19, the ability to host in-person meetings is looking less likely this spring season. Even with regulators issuing extensions to timeline requirements, the move to virtual or hybrid meetings is needed. Even Berkshire Hathaway’s annual meeting, dubbed “Woodstock for Capitalists,” is moving online. A sure disappointment amongst all Buffett loyalists who make the trek to Omaha every spring.
Each year, companies engage with shareholders to discuss the firm’s annual report and vote of current proposals. Proposals voted on include matters such as director elections, proposed dividends, executive compensation, and significant investment decisions. Specifically, investments making a positive impact on society through the likes of ESG, SRI, and impact investing. As most shareholders do not attend the physical meeting, voting is conducted via proxy. With the push to virtual events, the proxy voting process provides significant support to facilitate the meeting. Vendors, governments, companies, and shareholders all play vital roles in ensuring the integrity of AGMs and the accompanying voting process in light of COVID-19.
Regulators response to Covid-19
For AGMs, different regions have different regulators advising how to handle the task of going virtual or postponing the meeting. In the US, states regulate the meeting itself and the SEC oversees the issuance of proxy materials. For the latter, the SEC announced support for companies who have already issued proxy materials by allowing the ability to move the meeting date or format without re-solicitation of proxy materials.
As for the states regulating the meeting format, as expected, different states have different requirements. For Delaware, virtual-only and hybrid meetings are permitted. California permits virtual meetings but requires companies to obtain prior consent from shareholders. For New York, virtual components are permitted, but companies are still required to host an in-person meeting. On the opposite end of the spectrum include states like Georgia that do not permit virtual meetings, regardless if there is an in-person component. Lastly, even if the state supports virtual meetings, the company bi-laws must approve of it as well.
In Canada, the CSA announced similar recommendations as the SEC. If companies already filed and sent their proxy related materials, they can change the meeting without additional solicitation. Across Europe, companies are getting permission to change or postpone as governments issue social distancing requirements and lockdowns. In China, the SZSE and SSE extended the reporting period for annual reports by a month. Singapore’s, SGX RegCo is extending the window to hold annual meetings by two months.
Path to Virtual
Berkshire Hathaway is not alone in announcing the change to a virtual meeting. In the US, Starbucks, Amazon, F5 Networks, amongst others, have announced the switch. In Canada, TELUS and Enbridge moved to virtual meetings. Good news for shareholders is that companies have been transparent in their decision to go virtual and are communicating as best they can to alleviate any shareholder concerns. Regardless, the investment community is voicing concerns, particularly from the retail and activist side. Concerns included:
-Shareholder proposals will not have the same impact
-Virtual will allow companies to avoid complete answers to tough questions
-Shareholders have a low confidence level they will be able to participate fully
-Ability to vote in real-time - if influenced during the meeting
-Shareholders missing out on personal engagement with company directors (some companies are proposing to host follow up meetings to accompany this engagement).
Around the world, employees are getting used to conducting meetings and socializing on platforms such as Zoom, Go To Meeting, and Google Hangouts. However, hosting an online AGM requires scale and strict security measures (authenticating shareholders).
Firms, like Broadridge, that traditionally service the solicitation of proxy statements and coordinate investor communications are helping companies run virtual AGMs. To decide on a partner, companies must review features to ensure shareholders can participate as needed. Features include real-time voting, authentication, Q&A support, and addressing technical issues live. For the recent US companies going virtual, Berkshire is using Yahoo while Starbucks partnered with Broadridge.
Vendors have the technological capabilities for companies to engage virtually; however, it is up to the shareholder to adapt and seek comfort in the format. Virtual AGMs have been used in the past with 231 of the Russell 3000 hosting their 2019 AGMs virtually. This year shareholders must adapt and with success will push a trend towards virtual meetings for 2021.
To encourage shareholder comfort in virtual meetings, companies like Say and Proximity set out years ago to improve digital shareholder engagement.
Say provides features like digital Q&A and polling for annual meetings, earnings calls, and other investor events. To support urgent decisions on moving virtually, Say provides companies with API documentation, software development kits (SDKs), and virtual sandboxes to test and become comfortable with the integration. Proxymity also supports improving shareholder engagement. Built out of Citi’s D10X program and currently supported by Citi Ventures, the platform digitally connects shareholders and companies. Digitally connecting being a must-have, whether online or mobile, investor communication platforms support virtual meeting needs. Additionally, by providing a productive channel of communication between shareholders and companies, valuable intelligence can be analyzed.
The growth of these digital channels and vendor’s innovative approaches are covered in my upcoming report: Proxy Voting: Investing With our Ballot. Initiatives that solve investor communications upcoming challenges are in the spotlight and will play an increasingly important role this proxy season. Expect this to change future shareholder engagement.
For readers who are starting to get emails from their brokers about annual meetings and important proxy voting materials, I encourage you to engage. Many brokers provide simple and easy ways to vote or otherwise engage the company on critical decisions. These decisions will help shape the challenging year ahead.