
Fred D. Zemel
Partner
201-896-7065 fzemel@sh-law.comFirm Insights
Author: Fred D. Zemel
Date: May 22, 2018
Partner
201-896-7065 fzemel@sh-law.comMore than 20 states, including Delaware and New Jersey, currently allow virtual meetings of shareholders. Holding a shareholder meeting via the Internet is often more convenient and cost-efficient. However, companies must take steps to ensure that a virtual shareholder meeting is just as effective as a physical one.
State laws require companies to hold annual meetings of their shareowners to elect directors and to allow their shareowners to vote on matters in which a vote by shareowners is required for approval. Many states have relaxed their laws to authorize two types of virtual shareholder meetings. In a true virtual meeting, the meeting among shareholders is held exclusively via the Internet. In the hybrid form, some shareholders participate remotely and communicate with others present at a physical meeting.
As we discussed in greater depth in a prior article, virtual shareholder meetings have both benefits and disadvantages. In terms of convenience, shareholders can participate from anywhere and do not need to travel to a central location. For companies, the cost of a virtual meeting is generally significantly less than a physical meeting.
For shareholders, one of the primary disadvantages of remote participation is the lack of face-to-face communication. Critics of virtual meetings contend that shareholders should have the ability to confront the board of directors and assess their verbal and physical responses. Since voting may occur “live” rather than via proxy vote, virtual meetings can also be unpredictable, particularly when deciding a controversial issue.
For companies that decide to go “virtual,” the Virtual Annual Shareowner Meetings Study Group, which consists of 17 executives representing institutional investors, public companies, and proxy and legal service providers, recently published a whitepaper called “Principles and Best Practices for Virtual Annual Shareowner Meetings.” The paper aims to provide principles and best practices that companies should consider to ensure virtual board meetings are accessible, transparent, and cost-effectively managed, while meeting the important business and corporate governance needs of shareowners, boards and management.
The whitepaper outlines several principles that companies should take into account when they implement any form of virtual shareowner meeting. For instance, the report highlights that “companies should communicate clearly with their shareowners before moving to virtual meetings in order to ensure that shareowners understand what a virtual meeting is and how they can meaningfully participate.” It also notes that companies “should strongly favor the value of, and ways to facilitate, meaningful engagement of shareowners with board members, as they consider time and cost factors.”
The report also sets forth several best practices for virtual shareholder meetings, the majority of which are designed to ensure that virtual participation in shareowner meetings provides the same opportunity for dialogue among the company’s shareowners, management and directors. Below are a few examples:
For businesses considering a virtual shareholder meeting, the whitepaper is a great resource. We also encourage companies to work with an experienced New Jersey business attorney to make the meeting a success and ensure compliance with state law. Finally, if you have any questions or if you would like to discuss the matter further, please contact me, Fred D. Zemel, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.
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