In the fall of 2013, the Boards of both PNC Financial Services Group ($PNC) and Bank of New York Mellon ($BK) amended their company’s bylaws allowing them to end in-person stockholder meetings and instead hold their annual meetings virtually in cyber space. (PNC and BNY Mellon amend bylaws to allow for ‘virtual’ shareholder meetings) The Needmor Fund, a foundation based in Toledo, Ohio, filed a shareowner’s resolution asking the board of PNC to preserve the tradition of the physical stockholders meeting so that investors could ask questions and engage management and the Board on key issues. An individual investor filed a similar proposal at New York Mellon. Both are are clients of Walden Asset Management.
While neither company have yet announced plans to move solely to “virtual meetings,” their newly adopted bylaws allow for virtual-only meetings. Many shareowners are alarmed by this trend to lock out or potentially lock out shareowners from their own meetings.
For example, the Council of Institutional Investors, representing investors with over $3 trillion in assets, opposes any move away from in-person meetings stating the following in a policy:
Electronic Meetings: Companies should hold shareowner meetings by remote communication (so-called “virtual”meetings) only as a supplement to traditional in-person shareowner meetings, not as a substitute.
Companies incorporating virtual technology into their shareowner meeting should use it as a tool for broadening, not limiting, shareowner meeting participation. With this objective in mind, a virtual option, if used, should facilitate the opportunity for remote attendees to participate in the meeting to the same degree as in-person attendees.
Alarmed by this trend, the two activist clients at Walden Asset Management filed similar resolutions supporting internet access but in combination with a physical meeting.
The resolutions (see PNC example below) ask the companies to preserve the tradition of the physical shareowners meeting so that investors can ask questions and engage both management and the board on key issues.
The resolutions raise the fear that companies moving to virtual lock-out meetings on the internet could use them to avoid challenging questions on executive pay, mergers, or sensitive environmental or social issues. That would be a step back from accountability.
Similar resolutions in the past have been presented to other companies seeking to move away from in-person meetings. According to Frank Sanchez, Director of the Needmor Fund,
The hope is that this resolution will alert the Board of PNC to the distinct downside of moving away from in-person annual meetings and toward cyber only meetings. We seek a commitment from the Bank that they will not activate this new by-law provision, which we believe is poor corporate governance.
Bank of New York Mellon notes their intent is to inform shareholders that they will not move from in-person annual meetings, which provide an important opportunity for interaction between investors and the company. Their by-law providing for a virtual-only alternative is a precaution, in the case of a weather disaster, for example.
Wording of the PNC resolution is as follows:
Request Continuation of In Person Shareholder Meeting
WHEREAS: PNC’s Board has passed a bylaw amendment allowing it to discontinue its physical stockholders meeting and hold a virtual meeting on-line.
While PNC has not announced that it will abolish in-person meeting we find this decision alarming.
We strongly support the use of new technologies to make annual meetings accessible to stakeholders who cannot attend in person. This will make “attendance” simpler for investors globally and is a creative tool expanding outreach.
But we do not believe that Internet-only meetings should be substituted for traditional in-person annual meetings. Instead they should be a complementary. We believe the tradition of in-person annual meetings plays an important role in holding management accountable to stockholders.
In contrast, online-only annual meetings could allow companies to control which questions and concerns are heard and manipulate the exchanges between shareowners and the company. Face-to-face annual meetings allow for an unfiltered dialogue between shareholders and management.
The Council of Institutional Investors, a coalition of America’s largest pension funds with portfolios exceeding $3 trillion, has among its published corporate governance guidelines for public companies, “Cyber meetings should only be a supplement to traditional in-person shareholder meetings, not a substitute.”
Additionally, we believe in-person annual meetings are necessary for several reasons:
- Annual meetings are one of the few opportunities for top management and the Board to interact directly, face-to-face, with a cross-section of their shareholders.
- The digital divide persists in the United States and not all shareholders have access to computers.
- Annual meetings provide for direct questions to be posed to the Chair of the Audit, Compensation or Governance Committees of the Board.
- While some corporations argue eliminating face-to-face annual meeting can reduce costs and improve efficiency, we believe the investment in creating a physical space for shareholder meeting is money well spent.
- We believe PNC’s decision is a controversial governance step for our company. This decision sets a precedent creating a “slippery slope” that encourages other companies to insulate themselves from shareholders. Imagine a company that wanted to downplay investor frustration over compensation policies or practices, or poor business decisions leading to substandard financial performance or questionable governance or environmental records. “Virtual” on-line meetings would be a perfect way to insulate themselves from shareholder interaction or to “spin” any opposition as insignificant.
- In addition, if there was a major crisis with a company, a merger being proposed or a significant shareholder proposal, the last thing investors would want is a company’s refusal to hold an actual stockholder meeting.
RESOLVED: Shareholders request that PNC adopt a corporate governance policy affirming the continuation of in-person annual meetings in addition to internet access to the meeting, adjust its corporate practices accordingly, and publicize this policy to investors.
CONCLUDING STATEMENT: We ask our fellow shareowners to vote for this resolution supporting shareholder democracy and a continuation of the longstanding tradition of in-person annual stockholder meetings.
Instead of a stadium full of shareowners like Berkshire Hathaway on the left, both PNC Financial Services Group and Bank of New York Mellon could be headed for a total lockout of their shareowners. Let’s hope these two activists can help stem the tide with the help of Walden Asset Management and concerned shareowners at both banks.
For more information on this initiative, contact Tim Smith, Director of ESG Shareowner Engagement at Walden Asset Management. For more background on the problem of virtual-only meetings, see Glyn Holton’s Locking Out Shareowners (For a Fee) and Broadridge Smokes Their Own Dope, as well as my post Virtual Meetings.