Yes, a number of “Big Brothers” ARE listening in - some of them to offer constructive criticism and even a few words of praise - but some looking to name and shame - and even, in one extreme case, reported below, to actually threaten executives of companies they perceive to be bad actors:
Reuters was first out of the box in the naming and shaming game, with columnist Ross Kerber calling out AT&T’s decision not to allow shareholders to call in with questions - to a phone company, no less, and which, we believe they had done before - and for refusing to allow shareholder proponents to make their own presentations, reading them themselves at the VSM. What an unbelievably dumb decision this last one was - and what a terrible reflection on AT&T’s record where good governance is concerned.
A few days later, Reuters weighed in again with a column by Imani Moise headed “U.S. bank investors put on mute as shareholder meetings go virtual” - citing Ben Cushing, campaign representative of the environmental group Sierra Club, who “was frustrated when a bank representative” (at an unidentified big bank) “summed up his 350-word-long question in fewer than 60 words during Wednesday’s virtual meeting” and who said, “It’s definitely a concern if shareholders aren’t given time and space on the agenda to ask about critical issues.” Another totally tone-deaf and unnecessary move, and deeply disrespectful of shareholders and shareholder rights we have to say.
Further stirring the pot - and adding a big load of fuel to the fire to boot, Reuters quoted “fair housing advocate and activist financer Bruce Marks [who] said his organization, Neighborhood Assistance Corporation of America, is considering targeting executives at corporate conferences, social settings and even in their neighborhoods: “The banks’ move to virtual meetings forces activists to find other forums to address those questions where they’re not going to like it,” he was quoted as saying.
Activist investor and serial shareholder proponent John Chevedden weighed in with postings slamming some bad practices he encountered: Bloomin’ Brands, Inc. (BLMN)… “5:00 am meeting in my time zone” [Ouch! - Really heedless of investors.] “Management created bureaucratic barriers if shareholders want to ask questions at this meeting. No management presentation…No questions.” [No more Bloomin’ Onions for us!] Re: Cognizant Technology Solutions Corporation (CTSH)… “289,000 employees, $28 billion market capitalization, 14 shareholders logged into the annual meeting. No clue as how many of the 14 shareholders logged in late or logged out early.”
Long-term shareholder proponent and corporate governance blogger James McRitchie re-posted a large number of comments on May 1 that had been reported to and reported on by the Council of Institutional Investors, detailing a variety of obstacles Council members encountered:
A very common problem - and a total surprise all around, we think - many Council members - and frequent shareholder proponents - like the AFL-CIO , AFSCME and the Carpenters Union - use custodians and/or voting agents who assign control numbers of their own that do not match up with anything on the Broadridge voting platforms. So they could not log-in as shareholders - and thus, were not eligible ask questions. In some cases, they could not even log-on as “guests” since many companies chose not to have guests.
Ouch! A previously unknown proxy-plumbing issue with control numbers at VSMs that will need to be addressed, for sure…plus, a clear need for companies planning to have VSMs to allow interested parties to attend as guests… And why, we would ask, would a public company want to refuse to allow guests at a VSM in the first place?
McRitchie’s post cited a variety of other issues reported by Council members, like Andrew Shapiro of Lawndale Capital Management, who encountered a round of difficulties receiving timely notice and complying in time with “registration requirements” when trying to participate in National Cinemedia’s annual meeting, John Keenan of AFSCME who highlighted log-in problems experienced by shareholder proponents at three companies, Boeing and Pfizer - where, usually, companies take special care to be sure proponents get kid-gloves treatment - and at Honeywell - where shame on them - they allotted a measly 10 minutes for Q&A and deep-sixed a co-filer’s question. Stuart Dalheim from Calvert reported (rather kindly, we’d say) that his experience with PACCAR’s April 21 meeting was ‘less than ideal.’ The company took questions in batches and did not refer to Climate Action 100+ and investors’ interest in climate, but stated a summary question ‘will the company maintain its environmental leadership?’ to which the answer was “of course we will.” How’s THAT for a thoughtless and totally content-free answer? Kyle Seeley of the New York State Common Fund, which amended its policy of voting against directors at companies with Virtual-Only meetings in light of CV-19 issues, and noted that the Fund supported directors at firms that followed “best practices” - withheld votes from AT&T directors this year, due to concerns with their meeting practices.
McRitchie concluded his report with a nice and much appreciated shout-out: “The latest issue of Shareholder Service Optimizer provides advice to companies on how to host exemplary annual meetings. Stories cover: Practical Tips and Best Practices to Observe this Year - Starting from the Top of the House Down; Advice on Providing a Useful and Rewarding Experience for Attendees; Advice on Taking Shareholder Questions During the Meeting; An Update On Shareholder Meeting Readiness From Key Suppliers Broadridge and Computershare and Learn From The Best: Check Out The Starbucks Webcast For A VSM How-To ‘Playbook.” All of these articles, and more, are on our website, we’d note: optimizeronline.com
Ed Durkin of the Carpenters Union replied to the Harvard Law posting with thanks - and in a nice “big-brotherly” way - offering some words to the wise and noting that “Carpenter pension funds have attended over 300 virtual shareholder meetings so far this season” and adding, in a preview of things to come, “The one-way audio only nature of these meetings and the lack of spontaneous interaction with the chair, board members or audit firm representatives is a serious shortcoming. Clearly more work needs to be done in evolving the format of these meetings to allow appropriate levels of interaction.”
Count on it, readers, this will be the most serious by far of the many issues that will need to be resolved as issuers, service providers and big institutional investors assess their approach to Virtual-Only Meetings in 2021 and beyond.
Bear in mind that many of the biggest Council members have taken the position that they will withhold votes from Directors at companies that hold “Virtual Meetings” that do not allow for personal and unscripted interactions with top managers - and directors.
As another blog-post from law firm Bass, Berry & Sims pointed out mid-season, “proxy advisory firms ISS and Glass Lewis have also weighed in on the conduct of virtual annual meetings. With respect to virtual stockholder meetings, ISS’ viewpoint is that ‘shareholders [must have] a meaningful opportunity to participate fully in the meeting, including the ability to engage in dialogue with and ask questions of directors and senior management’ and Glass Lewis’ policy requires that stockholders ‘be afforded the same rights and opportunities to participate as they would at an in-person meeting’ including ‘the ability of shareholders to ask questions during the meeting.’ Therefore, companies run the risk of ISS and Glass Lewis recommending a vote against members of a company’s governance committee [at a minimum, we’d opine] where the company is hosting a virtual-only stockholder meeting and a stockholder’s ability to participate is significantly curtailed, for example by eliminating or substantially reducing Q&A opportunities.
The OPTIMIZER would also opine that a meeting where shareholder rights to ‘engage in dialogue with and ask questions of senior management’ AND to have basically ‘the same ability to do so that they would have at an in-person meeting’ was very specifically expected to be the case when the model enabling-legislation was drafted and enacted in Delaware, and in other states as well.
There is one other, very vexing area that needs to be addressed before the 2021 season - and we are sorry to say it - but it is our belief, as we wrote earlier, and as this season amply demonstrated - that the Virtual-Only Meeting and Voting Procedures that were offered by AST, Computershare, EQ and Mediant do NOT meet either the letter or the spirit of existing state laws that permit Virtual-Only Meetings: The big problem revolves around the near universal inability of beneficial owners of securities to record their votes online, due to problems with the bank, broker and voting-agent “control numbers” - where, so far at least, the control number “owners” refuse to release them to any firm other than Broadridge. And who could really blame them from closely guarding the identities and the holdings of their most valuable asset…key info about their entire client base!
The non-Broadridge providers provided a cumbersome “workaround” - wherein street name holders need to request a Legal Proxy from Broadridge, which will, and correctly so, erase any votes they may have cast beforehand and disable their ability to vote on the Broadridge platform - to guard against double-voting. Then, the beneficial owner has to transmit the Legal Proxy to the VSM host, who would re-transmit a control number to the shareowner that would work on their system. And typically, by the time this all happens, the meeting is over! As illustrated above, these requirements prevented numerous street name shareowners from even listening to the meeting, much less sending in a question. Still further, we feel fairly certain that if one or more shareholders could show that they were unfairly denied access to a meeting - whether due to unclear or untimely instructions, or to undisclosed control-number incompatibilities, or to technical or other impediments that prohibited them from asking pertinent questions - they could make a very good case for a meeting do-over.
Investors cut the non-Broadridge agents a much needed break in 2020, but the “Legal Proxy Rigmarole” will not cut the mustard with investors in 2021, we feel certain.
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