The most troublesome issues at 2020 VSMs - by far - have revolved around the Question and Answer Period: Just as we had warned, many activist investors took pains to submit questions - both in advance, via an e-mail to the company’s Investor-Page - or by typing into a “Question Box” on the VSM site while the meeting was in progress - to see if the “system” was working, and in a fair and impartial way. In far too many cases the “system” was simply not working, thanks to problems with those control numbers…and in a few cases the “system” seemed to have been intentionally rigged to cherry-pick the softball Qs - and to deliberately exclude tough ones.
But as the Council of Institutional Investors has been saying - and as Glass Lewis and ISS have been saying too - “Meetings of Shareholders” absolutely MUST provide the ability for shareholders to engage in “open and spontaneous interactions with management and the board.”
Many meeting participants, most notably BlackRock, have gone so far as to say that Virtual Meetings “should provide the same kind of opportunities for spontaneous and unscripted interactions that in-person meetings do.” But let’s face up to it folks: Asking stockholders to type their questions into an online “question box” as the only option - while the meeting is in progress, no less - is hardly a shareholder-friendly option and certainly not the equivalent of an “in-person experience.”
We at the OPTIMIZER have been saying for many years that the Q&A period is not only the most important part of a Meeting of Shareholders - it is, in fact, its’ very raison d’être. AND, more importantly, that it is, by far, the most valuable contributor to good corporate governance there is: It forces senior management to elicit info from the company at large, and to bone up on important issues - and on potentially important developing issues as well…
There is yet another good-governance aspect of a good Meeting of Shareholders, and that is the opportunity for shareholders to see as well as hear the management responses: We have been to dozens of meetings where we were so impressed by the quality of management, and the way they handled tough questions, that we bought the stock…and, almost always, did incredibly well.
But we have been to many meetings where a new CEO came across as so self-centered, and often so rude and crude and full of himself when faced with tough questions that we sold the stock that day…and saved ourselves from major losses. As we’ve mentioned here before, such folks almost always exhibit “body language” and a variety of “tells” when they are not telling the full truth - or not fully convinced of what they are saying - or maybe hiding some bad new info and fearing it might come out during the Q&A - that savvy observers can and do pick up on.
With that said…
HERE ARE OUR PRACTICAL SUGGESTIONS FOR HANDLING THE QUESTION AND ANSWER PERIOD IN A THOUGHTFUL, INVESTOR-FRIENDLY, TOTALLY FAIR AND THOROUGH MANNER:
Step-one should be to prominently welcome - and to solicit shareholder questions in your proxy materials - and to carefully explain exactly how they can be submitted, and how they will be answered.
A very good step-two: Invite shareholders to submit questions in advance, via an e-mail to your Investor Relations site. Some institutional investors have pooh-poohed this, as leading to cherry-picked questions and canned answers. But this is the easiest way, by far, for all concerned - and we have found this to be a very good indicator of the issues that are on the minds of the savviest and most interested shareholders. It’s also a quick and easy way to “get the Q&A ball rolling…and it provides excellent opportunities to have the questions answered by the best-qualified person…which conveys a welcome “openness” to shareholder questions, helps to showcase the management team as a whole and adds much needed variety to the webcast. But this should definitely NOT be the only way you allow questions to be asked.
Make it clear that the question period will be in two parts - the first for questions that relate to ‘the business of the meeting” - the items to be voted on - and a second period, following the voting, for general questions about the business itself or for any comments that a shareholder may wish to make about the conduct of the business. This will make it easy for you to sort out and address the questions that pertain to the election of directors, ratification of auditors and various compensation matters and those pertaining to the business of the company as a whole. It will also give you time to assess the number of questions that may be arriving in real-time from other sources - and to sort them all out and tee them up in a logical and fair fashion.
Shareholder proponents should be given a “reasonable time” to introduce their proposals, and a brief “seconding statement” should also be allowed, if another shareholder wishes to make one. Then it would only be fair to ask if there are any questions or comments on each proposal, and to wait a few seconds to see if there are any. (At most meetings there are few or no additional comments or questions on these matters.)
It is perfectly fair to expect shareholders who wish to ask a question at the meeting to identify themselves - and also to confirm themselves as shareholders in advance - just as one does at in-person meetings…But there are some potential difficulties you will need to think through to give all shareholders a “fair chance” to be heard: Please note carefully that if they are registered holders, you - or your service-provider, via its meeting app - should be able to confirm their share ownership with relative ease - but that not all service providers are able to do this.
If they are not registered holders - and you are using a service-provider other than Broadridge - there are some tricky logistical issues to sort out: To be “perfectly correct” prospective questioners have long been required to provide proof of share ownership in order to be recognized at a shareholder meeting. But at a non-Broadridge VSM this would have to be done in advance - and it requires quite a bit of extra time and effort by all concerned.
We suggest that if there are not a lot of questions in the queue, no real harm is done by simply “accepting” an assertion as to share ownership once a person has stated his or her name. And - if there are few or no questions in the queue - no real harm is done by taking a question from any interested party.
If questioners have identified themselves and asked to be recognized at the meeting in advance, it is not only perfectly proper, but smart to ask them to indicate what the general subject matter of their question is - to assure that it is a proper question or comment to come before the meeting as a whole and to tee it up at the proper time. But there is no need to ask what, exactly, the question is. This is a good way to assure “spontaneity” AND to guard against accusations of “cherry-picking.”
If few questions are expected, consider allowing shareholders to preregister and to submit their question over a dial-in conference-number: For companies that are used to getting very few or even no questions, this is an excellent way to go: It will allow you to offer shareholders the ability to call in on the same conference line you use for Directors, and for other participants in the meeting, like shareholder proponents, Inspectors of Election and outside auditors - and will help you to manage the question period smoothly and cost-effectively.
If your company has had many questions asked at in-person meetings, however - or if there are issues that might generate a higher-than-usual number of shareholder questions - offer a toll-free, operator-assisted number that will allow questioners to “wait in a queue” on a first-come-first-served basis. Aside from being the “fairest way” - and one that eliminates the chance to “cherry pick” - and that guarantees “spontaneity” - it is essentially the same system that has been available forever at in-person meetings. Please bear in mind that every Board Chair worth his or her salt knows how to deal with questions that are not in order - and with “hard questions” too…smoothly and with dispatch…And actually, it gives them an opportunity to really “show their stuff.” And please know that this is NOT an “expensive” option to offer - especially when compared to the expense of hosting a large in-person meeting.
Be sure to alternate questions in a fair and strictly impartial manner, starting, we’d suggest, with the first pertinent question received on your Investor Page, then moving to the first preregistered question, over a conference line, then to the first question in a phone-queue if you have one and then to the first person on line if you are hosting a Hybrid Meeting that has in-person attendees, then to the first valid question to come over a live internet site, then continuing in that order. Our top-tip here, recognizing how hard it is to Chair a meeting while juggling three or more separate queues of questions, is to have your Chief Corporate Governance or Investor Relations Officer - along with a trusted colleague - carefully sort-through, tee-up and ASK the questions that have been submitted via the IR page or via the “question box” on the meeting site.
If you really want to provide an experience that is as close as possible to an in-person meeting, plan to broadcast live video of the actual proceedings - and have the camera focus on the person who is answering each question. This may be a lot harder to do if you are having the questions answered by a variety of people - many of whom may not be in the meeting room - but it is certainly not rocket science to pull this off successfully. And, of course, it makes sense to weigh this against the possibility that, as is true of the majority of Shareholder Meetings, there are no questions at all.
Allow each questioner to ask one brief follow-up question if they wish to do so, to assure there is a true dialogue between the questioner and the management representative or director who answers each question.
Be sure that you have allowed a “reasonable” amount of time for each subject on the agenda to be covered - and for a “reasonably long” general Q&A period. This is where taking questions in advance can be particularly helpful.
And please remember that there is often no real need to impose an inflexible “hard stop” in the event that more questions than anticipated are still in the queue when the projected time has elapsed.
Be sure to commit - up-front - to answering all questions that were asked, prior to and during the meeting via the web-app, and then follow through promptly, by posting the answers on the Investor Page.
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