The first Corporate Secretary Think Tank in Canada was held on October 1, 2019 at the offices of Norton Rose Fulbright in Toronto. Computershare sponsored and participated in this event that brought together corporate secretaries and governance practitioners to discuss the latest market trends, share experiences and challenges, and debate best practices. Here are the highlights on a discussion on the role of technology in governance — how it is changing the landscape and the effect on the daily activities of Corporate Secretaries.
One of the potential impacts of technology on the governance landscape is adopting virtual shareholder meetings. Some question why there is a need to change the way shareholder meetings are conducted — why go virtual?
Communications of all kinds are shifting away from traditional paper and moving digital, and this includes communications between investors and issuers. As a new generation of investors is emerging, issuers need to adapt to the ways this group wants to communicate. At the same time, technology continues to improve, becoming increasingly reliable and secure.
- What is a virtual meeting?
- Benefits of virtual meetings
- Current state of virtual meetings outside of Canada
- Virtual meetings lack popularity in Canada
- Virtual meeting best practices
- Advocacy for retail shareholders
- What about Blockchain?
A virtual meeting is one where there is no physical location to attend the meeting; it is, instead, conducted entirely online. A hybrid meeting offers the virtual attendance option, but also maintains the traditional in-person shareholder meeting.
Both hybrid and virtual meetings require technology that allows shareholders to vote and ask questions online, in addition to accessing a live feed of the meeting. This is beyond the webcast technology that is often used at meetings now, which just allows individuals to listen to and sometimes view the meeting.
- Remove barriers to attendance such as geography, the cost of travel and physical challenges of participants, which could improve participation rates.
- Attend multiple meetings in a single day, especially during the peak May/June season.
- Lower operating costs as the price tag for technology setup is potentially offset by cost reductions for venue rental, travel, personnel and security.
- Possibly increased engagement as shareholders can submit questions through email or chat rather than having to stand up at a microphone in front of the group.
- Positive environmental impact in accordance with the increasing demand for better ESG practices.
The U.S. has led the virtual meeting charge, as Delaware was the first state to allow this meeting format in 2000 and held the first virtual meeting in 2001. Since then, adoption has steadily increased with 300 virtual and hybrid meetings in 2018.
Outside the U.S., many countries do not have clear legislation on virtual or hybrid meetings, and often require shareholder approval to offer them. Jimmy Choo held the first virtual meeting in the UK in 2016.
While there are clear benefits to virtual shareholder meetings, they have not been very popular in Canada to date. Concordia held the first fully virtual meeting in 2017, but there have been very few since then.
Most provincial statutes allow virtual meetings, but shareholders generally need to be able to communicate with management and with each other. Glass Lewis published guidelines state that "...we look for robust disclosure in a company's proxy statement which assures shareholders that they will be afforded the same rights and opportunities to participate as they would at an in-person meeting."1 There have been no published guidelines from Institutional Shareholder Services (ISS) or the Canadian Coalition for Good Governance (CCGG).
Many institutional investors have spoken out publicly against the use of virtual meetings. Ironically, the people who don't support virtual meetings due to fear of compromised shareholder rights often don't even attend shareholder meetings — they use different means to access and engage with management.
The question at the heart of the debate is, whose choice should it be on how to attend meetings — the issuers or the shareholders?
Before you move forward with a virtual meeting, you must be sure corporate bylaws, regulations and governing documents allow for this type of meeting. You must also be aware of Canada's unique third-party appointment process and ensure your service provider can address this requirement. Shareholders can appoint any individual to appear at the meeting and represent them; the service provider must be able to provide a unique login to the appointee to allow them to represent the shareholder at the virtual meeting.
Virtual meetings are often described as suppressing shareholder participation. If certain best practice protocols are put in place, however, there is the opportunity to enhance shareholder participation. Here are a few best practices:
- Disclose the process. Protocols should be developed and communicated in advance of the meeting.
- Provide instructions to shareholders on how they will be able ask questions. Hire an independent moderator to monitor the question queue to ensure questions are not being avoided. Post all questions and answers after the meeting, including those that were not presented at the meeting due to a lack of time.
- Prepare for voting. A meeting with a virtual component requires all motions to be voted by ballot, as conducting votes by "show of hands" isn't possible when holders are attending virtually.
- Make the meeting available. Record and post the meeting where all stakeholders can review it.
- Transparency is key. Don't choose a virtual meeting if you expect it to be contentious.
Retail shareholders are often less engaged with the issuers they invest in as they don't have the same level of access to management. Part of the problem is that in Canada, issuers don't have full insight into their beneficial owners who hold shares behind brokers and other intermediaries, due to the intermediated system. There is ongoing work on potential improvements to the proxy system, both in Canada and the United States.
Enhancing shareholder engagement is an important proxy topic for the SEC, and the CSA is expected to follow suit. As the technology continues to improve and people become more comfortable with virtual shareholder meetings, we could see the number of meetings increase. There is also the potential for the use of virtual or hybrid technology to be used for other events such as investor days.
Blockchain and the distributed ledger technology that supports it, has been widely discussed as a solution to transform proxy voting. Computershare supports the exploration of distributed ledger technology and other emergent technologies as and where they add significant value to the process. However, simply over-laying new technology on the current intermediated system without addressing the underlying problems in the proxy system will not deliver the needed improvements. More work needs to be completed on improving the integrity and confidence in the system itself, including share reconciliation and vote confirmation.
The material contained herein is provided for general informational purposes only and does not constitute legal or other professional advice or opinion. Computershare does not warrant or guarantee the accuracy or completeness of the material contained herein and such material should not be relied upon. "Computershare" refers to Computershare Canada Inc. and its affiliates.
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