In the United States, the first shareholders’ meetings held exclusively on the Internet are condemned by shareholders
The shareholders’ meetings of U.S. companies are turning into something out of a science fiction movie. Like the futuristic sessions of the Senate in the Star Wars saga, these corporate meetings are held today via videoconference, sparing the need to physically attend them. The distances separating investors and the location of the meeting are not even remotely close to intergalactic dimensions, granted. However, they are enough to discourage participation in meetings, besides increasing the bureaucracy regarding the preparation of necessary paperwork to appoint proxies. What seemed like a good idea is therefore giving investors a headache. Major managers and pension funds are complaining about companies that only hold shareholders’ meetings in cyberspace.
Since May 2009, 28 U.S. companies have hired Broadridge, a communication services provider for investors, for the online broadcast of their meetings. Of these companies, 17 have held or will hold by January, exclusively virtual meetings, and 11 opted for a hybrid form in which investors can choose between attending the meeting in person or remotely. Most companies decided to pay only for the audio service, which shows their concern in reducing the costs of shareholders’ meetings. It is the company that chooses to broadcast only the audio or the image of the meeting as well. Theoretically, this entire scenario would bring only advantages, since it eliminates the issue of distance and preserves the shareholders’ right to attend meetings, vote and express themselves. However, the reality is different.
In June, the information security and antivirus solutions company Symantec started receiving letters from shareholders unhappy with its plan to hold exclusively online meetings. The decision to no longer convene in person was made by the end of August. Glyn Holton, CEO of United States Proxy Exchange (USPX), a nonprofit organization that defends the rights of shareholders, began a campaign to encourage shareholders to make complaints against the proposal. "In a physical meeting, if the CEO says something wrong, I can stand up and correct him. If the system fails, how do I express myself?", he asks.
Symantec’s meeting was held on September 20 of this year, with audio only. Shareholders hated it. Besides the fact that 3 out of 11 board members failed to attend, investors complained that some issues were unanswered during the traditional Q&A session. The company guarantees, however, that all questions were addressed. The inconsistency of information raises the feeling of suspicion surrounding the system. “It was not a matter of technical issues”, assures Cathy Conlon, vice-president of strategic development at Broadridge. Regardless, Symantec announced in October that as of 2011 it would resume the meetings in a hybrid format, in response to the outcries.
Among those who complained is Steve Schueth, CEO of First Affirmative Financial Network (FAFN), which follows environmental social and governance (ESG) criteria in its investments. He saw Symantec's treatment of its shareholders as disrespectful. “We don’t think it works. The companies that adopt this procedure will be considered suspicious by us, meaning they are not transparent regarding their processes”. Schueth believes that the benefits brought by technology do not replace the traditional meeting. “When we talk via email, we converse with less quality than by telephone. Moreover, when we speak on the phone, we converse with less quality than in a face-to-face conversation. It is a matter of human communication, involving tone of voice, body language, and other aspects.” Even if there is video, and the camera focuses on the speaker, the spectator cannot see how the shareholders react, nor can they see each other. “The meeting room always has certain dynamics”, he says.
Sometimes the benefits of technology are overestimated, says Simon Wong, partner at Governance for Owners, an entity that promotes shareholder activism. There is a reason why people confront many hours of plane travel to sit face to face and do business. “There are videoconferences and other resources, but they don’t allow you to feel how people are really behaving. Emotions are eliminated. It is very important to personally listen to executives: You feel the tension or ease in them”, he says.
GOING BACK – In 2009, Intel was the first to hold a hybrid meeting, allowing real-time electronic voting. Influenced by this successful experience, in which the number of remote participants was higher than those present, the chip manufacturer tried an exclusively virtual shareholders’ meeting, but it faced resistance. After several complaints, from shareholders such as Walden Asset Management, the company went back and again held the meeting both traditionally and online. Walden along with EFO Capital Management also protested against Procter & Gamble's proposed 100% virtual shareholders' meeting, which was unsuccessful.
Ironically, even Broadridge, the developer of this technology platform, was severely criticized, including for technical issues, after holding an online shareholders’ meeting. Holton, from USPX, had trouble logging in. When he called tech support, he was informed that the problem was in the system and not in his computer, and that many people were facing the same problem. While Holton spoke to the technicians, the meeting proceeded. Without internet access, he participated by phone and asked if the executives were aware of the tool’s flaws. The answer was that only four people had reported issues, and three of them had been solved. The executive recalls that, coincidently or not, the telephone connection also failed after they answered his question. In an official note, the company stated, “a detailed analysis of the access logs revealed no technical system issues". It added that computers must meet the minimum configuration requirement in order to gain access, which had probably not been met in some cases.
The tools to encourage shareholders’ participation in meetings are positive, according to the Institutional Shareholder Services (ISS). However, this governance consultancy company has no opinion regarding the benefits or losses from a shareholders' meeting held exclusively on the Internet. “If, however, the shareholders feel excluded, or if they experience technical issues, it goes against the purpose of improving the dialogue between the company and its investors”, says Gary Hewitt, the consultancy company’s spokesperson. ANTs, which produces data consolidation software, held its shareholders' meeting in a similar fashion in November and recorded a participation six times greater (leaping from 30 to 200 people). In the process of achieving this feat, the company also experienced technical setbacks. According to the CEO, Dave Buckel, eventually everyone who wanted to participate in the meeting succeeded. “We worked very hard to make it possible”, says the CEO.
NATURAL PATH - Schueth, from FAFN, believes that entirely virtual meetings may become a trend unless shareholders complain. “We will always express ourselves”. Holton, from USPX, however, believes that it will take some time before the technology can be trusted, and it will depend on the commitment of companies to develop such technology.
In Brazil, the exclusively virtual shareholders’ meeting, such as those convened in the United States, is prohibited by the Corporate Act. The meeting must be held at the company’s headquarters. “I don’t think it is advisable, and I don’t believe in the possibility of Brazil heading towards the same direction as the U.S.", says Régis Abreu, director of the Brazilian Association of Financial and Capital Market Entities (“Anbima”), and vice-president of the Association of Capital Market Investors (Amec). However, the regulation does authorize the electronic submission of voting proxies, as long as a legal representative of the shareholder attends the meeting.
To further promote the participation of these meetings, Anbima and Amec plan to develop, by the end of 2011, a portal that allows votes to be received in real time. “Without having to catch a plane, appoint a proxy, travel to distant places and spend the night away from home”, Abreu says. To be more effective, the proposal relies, among other factors, on the extinction of the legal imposition regarding the physical presence of the shareholder or proxy.