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Virtual shareholder meetings are wise for a short-term pandemic, but worrying for long-term investor rights

By March 10, 2020News

By Catherine Smith, Proxy Voting Services Manager and Senior Research Analyst

In response to the spread of the novel coronavirus, Enbridge Inc. announced  on Tuesday that its May annual shareholders’ meeting would be a “virtual” meeting, held by electronic means only and with no shareholders physically present. Health officials warn that the disease can spread in large gatherings, and shareholders’ meetings are just such events.

Some law firms, shareholder advocates and other experts have speculated that other companies will take the same approach to avoid spreading the virus at their annual shareholders’ meetings. Last week, Starbucks Corp announced that it would also hold a virtual shareholders’ meeting to prevent the spread of the coronavirus.

Holding an electronic shareholders’ meeting is a sensible precaution to take in the face of this pandemic. However, we are concerned that companies may continue to hold virtual shareholders’ meetings once the coronavirus threat has passed, making virtual meetings their new normal.

Virtual shareholders’ meetings have been rare in Canada. The laws in some Canadian jurisdictions make it difficult or impossible for companies incorporated there to hold electronic shareholders’ meetings. However, virtual meetings are becoming more widespread in the United States. Broadridge Financial Solutions reports that 326 US companies held virtual shareholders’ meetings on its platform in 2019.

Virtual shareholders’ meetings are a mixed bag for shareholders.

The primary advantage of electronic meetings for shareholders is that they save on the time and travel costs that might be required to attend in person. This makes it easier for “main street” investors without a lot of resources to participate.

On the other hand, virtual shareholders’ meetings can restrict how much those investors can actually participate. The electronic means of attending and participating are entirely in the control of the company holding the meeting. The company may not provide a way for shareholders to ask questions, present proposals, or to hear and see everything that happens. They may allow directors to ignore questions or avoid having them on the record, and questions or comments may not be shared with all participants. For most shareholders, the annual meeting is their only chance to see and talk to the company’s directors and executive management, or to hear what other shareholders have to say. Even if companies do not intend to restrict shareholders’ participation in virtual meetings, the equipment they use may not have the capacity to allow all of the participants to see and hear each other. The result is that shareholders’ right to attend, bring proposals, and take part in those meetings becomes limited.

In Canada, virtual meetings place an additional restriction on the rights of shareholders in remote and rural areas due to the lack of broadband internet access there. The CRTC estimates that about 60 percent of rural communities in Canada do not have broadband access. For shareholders in those areas, taking part in electronic shareholders’ meetings is impractical, or impossible.

SHARE prefers that companies adopt “hybrid” shareholders’ meetings, which are in-person meetings that also allow shareholders to participate electronically should they choose to do so. However, with either a virtual or hybrid meeting companies must be sure that shareholders who attend electronically have the same opportunities to participate as if they were physically present, including asking questions and engaging in dialogue.

We take this very seriously. If a company restricts access and full participation by shareholders, SHARE will vote against the entire board at the next opportunity.

If the coronavirus begins to spread more aggressively, more companies – including more Canadian companies – may hold virtual meetings to protect the health of the attendees and the public. As a one-time measure to avoid spreading the virus, this is a responsible course of action. But we expect companies to explicitly commit to holding in-person meetings once again when public health concerns allow. It would not be responsible for companies to adopt virtual shareholders’ meeting as their standard practice, to protect their directors and officers from shareholders who want to ask questions, talk to them, and hold them to account.

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