Online annual meetings may favour managers over shareholders

“WE WILL GREATLY miss seeing our shareholders,” lamented Warren Buffett ahead of Berkshire Hathaway’s annual general meeting (AGM) on May 2nd. Thousands of his devoted shareholders would normally have flocked to Nebraska for the jamboree. Not this year. Because of covid-19 the conglomerate has moved the gathering online. The 2020 edition of “Woodstock for capitalists”, as Mr Buffett calls it, may turn out to be a “wooden experience”, says Charles Elson of the University of Delaware.

An oddity in pre-coronavirus times, virtual AGMs are spreading fast in the age of social distancing. By the reckoning of Institutional Shareholder Services (ISS), a shareholder-advisory firm, the total number of planned annual meetings worldwide confirmed to be online-only as of April 22nd was 2,240, up from 286 for all of 2019. American firms accounted for over half that figure. On April 27th Boeing, a troubled aeroplane-maker, and Honeywell, an industrial conglomerate, both held their AGMs in cyberspace (including voting on shareholder resolutions, most of which were defeated). On May 4th America’s Securities and Exchange Commission, a regulator, will hold a public hearing (online, naturally) to discuss what it all means for corporate governance.

Online meetings have their virtues. Many AGMs are sparsely attended because far-flung shareholders, who could easily join a virtual one, cannot make it to a physical venue. They are also cheaper, greener and less time-consuming than traditional meetings once travel is accounted for.

Firms may cite such things as reasons to stick with virtual AGMs after the crisis. That would be unfortunate, for the apparent high-mindedness may conceal a more self-serving reason why bosses prefer virtual AGMs: they can tilt proceedings in favour of management.

It is easy to see how online meetings could dampen shareholder dissent. In a room full of people you can take the pulse of the crowd. Those on the fence about a resolution may be swayed to join a rebellion if they sense seething frustration in others. Francesca Odell and Helena Grannis of Cleary Gottleib, a law firm, point out that in online meetings “people can’t see someone shaking their fists angrily or waving their hands.”

Most observers support online meetings during the pandemic as a stopgap, so long as they meet high standards of transparency. ISS urges firms to ensure that shareholders can still “ask questions of directors and senior management and to engage in dialogue”.

But the consensus among corporate-governance types is that AGMs should be held in person as soon as it is safe to do so. Otherwise, warns Mike Mayo, an analyst at Wells Fargo, post-crisis annual meetings risk becoming “emotionless, toneless, check-the-box exercises”. He finds attending them to be an invaluable way to hold executives to account. In contrast with the “one and done” question-and-answer session typical of online forum, in-person encounters allow for a proper grilling of bosses and board members. “For directors, it is a meet-your-makers moment,” echoes Mr Elson. The makers would no doubt rather meet in a room than on Zoom.■