Shareholders Say Companies Are Using New Tactics to Muzzle Them
Sept 26, 2024, 3:30 am EDT
Public companies are using a raft of new tactics to help with an age-old problem: controlling the narrative.
Shareholders promoting both progressive and conservative agendas say companies are increasingly trying to limit their voices at annual shareholder meetings—the one day of the year when boards are required to hear from the people who own their companies.
Attempts to assert that control has become easier as more companies hold online-only annual meetings. Investors who want to speak are being told they must read proposals verbatim, a departure from standard practice. If they go off-script, they are warned they’ll be muted. In some cases, companies are taking questions submitted online and summarizing them in ways investors believe distort their meanings—or not answering them at all.
The complaints about annual meetings are part of a broader sense that companies are working to curb shareholder involvement. JPMorgan Chase CEO Jamie Dimon told a room full of investors in New York earlier this month that annual shareholder meetings are “a frivolous waste of time” that have been “hijacked by special-interest groups.” At the same investment industry event, Exxon Mobil CEO Darren Woods indicated that his company would consider suing more shareholders who file proposals he views as “abusing” the system. Exxon stopped a climate-related proposal from going to a vote this year after Exxon sued the investors behind it; a judge dismissed the suit in June after the investors withdrew their proposal.
All of this troubles veteran investors and their advisors. Barron’s interviewed more than two dozen people, including lawyers, corporate governance specialists, and shareholders, and viewed emails between corporate teams and shareholders that illustrate how these dynamics are playing out.
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Companies are refreshing old playbooks. For decades, they have tried to limit investors—sometimes, as in the case of fiery shareholder activists like Evelyn Davis, by threatening to kick them out—who exercise their right to read proposals to executives at annual meetings. But investors now say management teams are going to new lengths, wielding better technology and vague meeting regulations, to blunt criticism from shareholders.
Not all proposals deserve a spot on the ballot. Companies often exercise the right to bring them before the Securities and Exchange Commission in an effort to toss them out. But directors are paid to work for all of their shareholders. At the bare minimum, critics charge, boards must listen to them once a year without seeking to limit them, whether they represent activist funds or individuals with tiny stakes and narrow interests.
Companies have a wide scope in choosing how they run their meetings. Federal and state law—including in Delaware, where 65% of S&P 500 companies are incorporated—provide little guidance on meeting mechanics beyond mandating that companies must hold them, provide shareholders with advance notice of timing and what issues are up for votes, and count ballots properly. In 2020, 30 states permitted virtual-only, 15 required a virtual-plus-physical setting, and six allowed only in-person.
Today, almost all states permit remote-only annual meetings. Fully or partially virtual meetings aren’t new, though they became ubiquitous during the pandemic. Virtual meetings undoubtedly allow easier access for shareholders and the public. But they often also run counter to corporate-governance practices that say virtual settings should aim to recreate in-person meetings as best they can.
“Companies are continuing to use virtual meetings, even though the need for them has been alleviated, because it’s much less transparent and personal,” says Andrew Freedman, an attorney at New York City law firm Olshan Frome Wolosky, who chairs the firm’s shareholder activism practice. Hybrid meetings—a mix of virtual plus in-person components—offer a better format for investors, Freedman says, echoing many shareholder advocates.
Today, the majority of virtual shareholder meetings are run using communications technology from Broadridge
From 2016 to 2019, Broadridge’s platform hosted a few hundred virtual shareholder meetings annually. That rose to nearly 2,000 during the pandemic in 2020. In March of that year, the Council of Institutional Investors, which represents large shareholders such as public pensions and corporate retirement funds, said it hoped companies would use virtual-only formats as “a one-off, tailored for current circumstances.”
The group’s most recent guidance says companies employing virtual tech “should use it as a tool for broadening, not limiting, shareowner meeting participation.” It said companies should make questions they receive transparent to shareowners, with room to omit “belligerent or abusive” questions.
Some of the largest companies, such as Walmart, BlackRock, JPMorgan
AAPL
Companies argue that they opt for virtual meetings because they cut down on time and money, offer wider shareholder access, and are a response to declining in-person attendance. However, it’s difficult to replicate meaningful in-person engagement online, much as CEOs say of remote work. Many companies don’t spring for video, opting for audio-only events where it’s unclear who from the board is present.
Some investors charge that question-and-answer sessions, which aren’t legally required but remain standard practice, have begun to resemble quarterly earnings calls, where management can prescreen questions, offer scripted responses, and limit chances for follow-ups.
This past spring, progressive shareholder advocacy group As You Sow, which urges corporations to consider environmental and human-rights issues in their decision-making, submitted a climate-related proposal with Detroit-based energy provider DTE Energy. DTE told As You Sow that it must read its resolution verbatim during the meeting. The group challenged that requirement, which it hadn’t heard before.
As You Sow and DTE disagreed over interpretations of company bylaws and a section of the Securities Exchange Act of 1934 that defines who is eligible to submit and present proposals. The disagreement rested on what it means to “present” a proposal as well as DTE’s latitude in running its meeting. DTE ultimately said the group could present as it saw fit, reading its proposal in addition to supporting comments. DTE advised shareholders to reject the proposal, which failed with 11.6% of the votes.
“There has been a change over time,” says Danielle Fugere, As You Sow’s president and chief counsel. Investors have long lined up at the microphone to ask questions. But with the rise of virtual-only settings, Fugere says, “you’re seeing companies obviously picking questions that are friendly to them, and not necessarily responding—or giving the opportunity to shareholders to ask the more difficult questions. We’re seeing even more pushback.”
“We consider each situation holistically, and in this case were happy to accommodate As You Sow to give them an opportunity to present their proposal and accompanying material, while also maintaining a tight agenda for efficiency,” a DTE spokesperson said in a statement.
The National Legal and Policy Center, a conservative advocacy group, ran into a similar problem at Mondelēz International
The center filed a resolution to request that the board form a subcommittee to examine the risks of associating with outside groups, a proposal it raised after objecting to Mondelēz’s relationships with a United Nations office that promotes human rights and an organization that advocates for LGBTQ+ communities.
“We ask that you only read your proposal at this time. Any deviation will result in your being muted again,” Mondelēz told Paul Chesser, director of NLPC’s Corporate Integrity Project, in an email. Chesser found the language odd and said the instructions appeared to say that the company was requiring proponents to limit their remarks to reciting proposals. Mondelēz said it was following the same guidelines as last year.
“It was the first time I’d seen it,” Chesser says. He was ultimately able to present remarks in support of the resolution, not just read the proposal’s text. The proposal failed with less than 1% of the votes.
“To ensure broad shareholder participation and allow ample time for Q&A at our annual meeting, we ask shareholder proponents to limit their comments to three minutes and to keep their comments to matters germane to their proposal. We also communicate the agenda and rules of conduct in advance of the meeting,” a Mondelēz spokesperson said. “These are standard practices for public companies.”
Some companies are tweaking the language they send to shareholder proponents before meetings. Alphabet said in an email to shareholders in advance of the company’s meeting in June that when they present, “the statement must be strictly confined to the matter that is under consideration.” Christina O’Connell, senior manager of investments and shareholder engagement for progressive investor group Ekō, said she had never seen that language before.
Shareholder representatives are also fielding limitations around how much time they have to present proposals. That was the case this spring at Alabama-based coal producer Warrior Met Coal, says Brandon Rees, deputy director of corporations and capital markets for the AFL-CIO, the union federation that represents some 12.5 million workers. (The union that represents Barron’s journalists is an affiliate of the AFL-CIO.)
The AFL-CIO had five shareholder proposals on the ballot. Warrior Met Coal said the group’s representative would have three minutes to present all five resolutions. After Rees objected, the company offered five minutes. Rees accepted that as a compromise, he says, and submitted prerecorded proposals in line with its wishes. “The marketplace of good ideas isn’t limited to shareholders with large pocketbooks,” says Rees. “The ability of even small retail investors to submit and present proposals is valuable to the marketplace.” Warrior Met Coal didn’t respond to requests for comment.
Not everyone is a critic of the virtual format. Jason Koenig, a partner at law firm Akin Gump Strauss Hauer & Feld who counsels both activists and corporate clients, says many shareholders like the virtual format because they can participate with minimal effort, and that he hasn’t encountered companies attempting to unreasonably limit shareholders’ remarks in annual meetings. He pointed to Berkshire Hathaway
Theoretically, he says, companies could try to make shareholder participation more difficult because of the leeway they have around meeting formats, adding: “However, this is only relevant if what occurs at the shareholder meeting moves the needle with respect to, say, a proxy fight or a shareholder proposal. I don’t think that is true most of the time.”
Academic research into virtual meetings is limited but growing, and conclusions are mixed. Some researchers find no evidence that companies choose remote meetings to avoid scrutiny, while others have found companies limit shareholders’ voices in virtual settings to tamp down on critical viewpoints.
“It’s a positive access-point issue, not a controlling issue,” says Doug Jackson, co-head of U.S. mergers and acquisitions and co-head of industrials at investment bank Greenhill, an affiliate of Mizuho, who advises companies on defending themselves against activists. “I think the controlling issue only comes up in very rare situations, where you’ve got frayed relationships with a shareholder who has an agenda.”
Still, some shareholders are clearly feeling shut out from real engagement in the virtual setting. This year Nadira Narine, senior director of strategic initiatives at the Interfaith Center on Corporate Responsibility, circulated an informal survey to members of the organization, which represents institutional investors overseeing some $4 trillion of investments, to gauge their experiences at annual meetings.
The results showed members felt virtual-only settings allowed companies to avoid critical questions, and that question-and-answer periods generally didn’t include ample time for submitting questions or getting answers. Some investors responded in the survey that their questions went unacknowledged.
“I think what’s happening is a reflection of what’s happening in the wider world, in that there’s us versus them,” says Jim McRitchie, a longtime shareholder advocate who has attended around 100 annual meetings. “Why is it that corporation leaders feel like they are on one side and the shareholders are on another side? We should all be on the same side.”
Write to Rebecca Ungarino at rebecca.ungarino@barrons.com
