Virtual Shareholders’ Meetings: Yay or Nay?

Picture1By Alex Bullock

Next month, Berkshire Hathaway Inc. will hold their annual shareholders’ meeting in Omaha, Nebraska. Berkshire Hathaway’s annual shareholders’ meeting is a spectacle unlike any other, bringing investors from around the country (if not the world) to middle America for a weekend of free swag and corporate governance. Along with a 5k run, a movie screening, and endless corporate partner booths, the shareholders will take formal corporate action to vote to elect directors, to give an advisory vote on executive compensation plans, and to act on shareholder proposals, among other things. Berkshire Hathaway’s annual shareholders’ meeting is a significant event; indeed, I myself have thought about buying stock in the company just to see what their shareholder meeting is like in person.

Every year, the Berkshire Hathaway chooses to hold its meeting in Omaha, Nebraska, the location of its principal place of business, which is allowed under Delaware law (Delaware is the company’s state of incorporation). At the same time, however, as a corporation incorporated in Delaware, the Berkshire Hathaway could decide to hold its meeting in no place at all—that is to say, it could make use of a tool many corporations are turning to: the virtual shareholders’ meeting.

Delaware is one of several states that, in recent years, have amended their corporate statutes to explicitly allow corporations to hold their annual shareholders’ meetings online (using a service like the one provided by Broadridge Financial Services, Inc.) instead of in person at a physical place. Most states require that a shareholder participating in a shareholder meeting online can: vote during the meeting; see and hear the proceedings contemporaneously; ask questions; and have their remarks heard by other shareholders.

On one hand, virtual shareholders’ meetings present an efficient use of the technology available to corporations and increase shareholder participation by making attendance less of a burden on shareholders (it is easier to make time to “attend” a shareholders’ meeting online, as opposed to making arrangements to attend a meeting in person). This use of technology is especially beneficial to smaller corporations that rarely have outside shareholders in attendance at their meetings because it reduces costs.

On the other hand, removing the personal element brought by an in-person shareholders’ meeting, some say, may have the effect of decreasing corporate transparency between management and shareholders. Critics of virtual shareholders’ meetings generally argue that virtual participation is a poor substitute for “looking the board in the eye,” that the opportunity to address corporate management and directors in person is an important shareholder right, and that the current technology is not a sufficient replacement for a physical meeting. For example, company management could more easily filter out negative shareholder feedback, control the questions or proposals presented at meetings, or avoid social pressures that could come from a face-to-face experience.

Some states, like California, have sought to limit corporate power in this way by allowing the shareholders to essentially veto the holding of a meeting without a physical place (the corporation is required to get unrevoked shareholder consent to hold a virtual-only shareholders’ meeting). Proponents of virtual shareholders’ meetings argue that imposing too many restrictions on virtual shareholders’ meetings makes holding them impractical or unrealistic.

The Model Business Corporations Act, a product of the American Bar Association, does not explicitly allow for virtual shareholders’ meetings, but a Model Act state (like Washington, the state of this particular journal) could easily amend their own corporate statute to allow corporations to hold virtual meetings. Washington already allows for a “hybrid” type of shareholders’ meeting (allowing for remote communication services to be used), but a “virtual-only” meeting is not currently an option under Washington law. A state considering allowing virtual shareholders’ meetings could consider requiring that corporations, upon request, make a physical space available (at the corporation’s principal office, for example) for shareholders to attend the meeting in the company of the corporation’s management, while still allowing for the “default” method of attendance to be via an internet service.

If Washington allows for virtual shareholders’ meetings, a company like Starbucks Corporation, which, like Berkshire Hathaway, is noted for its highly produced annual shareholders’ meetings, may continue to hold their meeting in a physical place. However, a Washington-based technology company, like Microsoft Corporation or Zillow Group, Inc., may benefit from the optics and the ability to hold a virtual shareholders’ meeting. Smaller corporations, especially, stand to benefit from reduced costs and increased shareholder participation. If anything, since the technology is available, it seems reasonable to allow companies to take advantage of it at the discretion of their management and shareholders.

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