Voiceless at virtual shareholder meetings?

Shareholder meetings are one of the only opportunities for most investors to meet and interact directly with management, and to raise concerns regarding the firm. While an extensive literature exists on shareholder votes, studies on the actual content of shareholder meetings are only starting to emerge. Since the onset of Covid-19 it shifted shareholder meetings from the in-person arena to the virtual-only arena: Clabaugh, Connors and Peters 2020 report that before Covid-19, only 12% of the S&P 500 companies held virtual-only meetings, but this figure increased to 77% after Covid-19.  While, gradually, much of the world has gone back to operating in-person, as of now, virtual-only shareholder meetings are still happening essentially as often as at the heights  of the pandemic (Broadridge, 2022).

Now that meetings are held virtually, there is good documentation of their content. This enables us to investigate whether at virtual-only meetings firms strategically employ certain methods that limit shareholders’ voice, i.e., whether firms limit shareholder voice when shareholders are relatively critical of management. I address this question in my paper titled “Shareholders’ Voice at Virtual-Only Shareholder Meetings”. Virtual shareholder meetings may be of special concern because, in contrast to in-person meetings in which participants may occasionally talk or even shout when they do not receive permission to speak, and other participants in the meeting are aware of that, at virtual-only shareholder meetings, shareholders are unable to vocally oppose management in any way since their voice is literally muted throughout the meeting.

To understand whether shareholders’ voice is strategically muted at virtual-only meetings, I focus on three methods firms may use to limit it. The first method is a firm’s choice to ignore shareholders’ questions at virtual-only meetings. At virtual-only meetings, questions in the Q&A session are submitted by shareholders in writing via a text box, frequently during the meeting; these are seen only by the firm’s management, which can select which questions to reveal and address; questions that are not addressed are essentially never revealed. That is, of course, quite different from the way things happen in an in-person meeting, at which shareholders typically line up in front of the microphone and each is permitted to ask a question. The firm does not know in advance which question each shareholder will ask.

To capture the selection process of the questions ultimately addressed at shareholder meetings, I assembled a unique dataset that documents questions submitted by shareholders. I did this with the generous help of Mr. John Chevedden and Mr. James McRitchie (henceforth, “C&M”)— two shareholders who, for many years, have been actively participating in shareholder meetings. I assembled a unique dataset that records all 767 questions C&M submitted between March 2020 and June 2021 (henceforth “Shareholder Questions Dataset”).

Management is more likely to ignore the questions shareholders submit at virtual-only meetings, thereby limiting shareholders’ voice.  

Using the Shareholder Questions Dataset, I find that a question on a particular topic was significantly less likely to be addressed by a company when shareholders’ voted against the directors proposed by management. For example, a one S.D. increase in the frequency of shareholder support for the directors proposed by management was followed by a 21.9% increase in the likelihood that a question would be answered by the firm (relative to the average frequency of the latter variable). Put differently, precisely when shareholders’ votes indicate that they are contentious with management, as indicated by shareholders’ low support rates for the directors proposed by management, management is more likely to ignore the questions shareholders submit at virtual-only meetings, thereby limiting shareholders’ voice.  

The next two methods analyzed reflect the extent to which companies wish to encourage communication with shareholders at virtual-only shareholder meetings. To obtain this data, I hand-coded 1,904 transcripts of shareholder meetings held between January 2019 and June 2021 (inclusive). The first method analyzed is whether the firm explicitly limited shareholder questions at virtual-only meetings to topics related to the proposals submitted by shareholders. This policy severely limits the topics on which shareholders can ask questions, since their proposals pertain to a small range of topics.  I find that when shareholders tend to vote against the directors proposed by management, firms are significantly more likely to limit questions to questions related to shareholders’ proposals. Specifically, a decrease of one S.D. in shareholders’ support of directors was followed by a 13.8% increase in the likelihood that the firm would limit questions to topics related to proposals (relative to the average frequency of the latter variable).

Results show that firms that receive relatively low support rates from shareholders, are the firms that tend to use methods that make it more challenging for shareholders to make their voice be heard. 

The last method analyzed, also based on data coded from the transcripts, is whether the firm reveals at the shareholder meetings the precise vote outcome for each vote, i.e., in percentage, or whether, alternatively, it merely reports whether each vote passed or failed. When the firm does not reveal precise vote outcomes at the meeting, shareholders cannot “cite” a low-support vote outcome and ask why support rates are low, or how the firm intends to respond to the low-support vote outcome. Additionally, by delaying the revelation of the precise vote outcomes, the firm can stave off the media’s and shareholders’ legitimate criticism of proposals that passed with only low margins. The results indicate that especially firms that receive low support rates for the directors proposed by management are likely to disclose only pass/fail vote outcomes. Thus, the results show that firms that receive relatively low support rates from shareholders, are the firms that tend to use methods that make it more challenging for shareholders to make their voice be heard. 

To conclude, while the technology allowing companies to hold virtual shareholder meetings has the potential of increasing shareholder democracy since attending such meetings is substantially less costly than attending in-person meetings, currently, virtual-shareholder meetings are not maximizing shareholder democracy to their full potential. Reaching the latter goal could be enhanced by allowing shareholders to present their questions “live and unfiltered,” to require firms to disclose all questions submitted by shareholders, forbidding firms to restrict the questions to topic pertaining to proposals, requiring firms to disclose precise vote outcomes at the shareholder meeting, and making the recordings of shareholder meeting publc and easily accessible.

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By Miriam Schwartz-Ziv, Assistant Professor of Finance, Hebrew University of Jerusalem.

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