Here we are on the cusp of this year’s annual meeting season, one year removed from the craziness of companies scrambling to change their already-announced in-person meetings to virtual shareholder meetings. I wrote a lot about that in 2020. (Thanks for all the support and encouragement!) And I was happy to play a role (wearing my Rutgers Law School hat) in the Multi-Stakeholder Working Group that issued a major Report on VSM practices in December. Much has been written about that effort, as well as the proxy industry’s efforts to develop Application Program Interfaces (APIs) to enable beneficial shareholders to easily and securely participate in any VSM. Now, we get to see if companies are going implement any of what the Report recommended…
It’s early, as most 2021 proxy statements are still on the way to your homes, and annual meeting season will start rolling at the end of April. A few early birds have already had their annual meetings. Here are reports from four VSMs I’ve attended to date: Visa, Apple, Disney, and AmerisourceBergen.
Visa Inc. – January 26, 2021
The meeting began promptly at 11:30 a.m. EST. Audio only. The chief legal officer/corporate secretary, Kelly Tullier, did a good job explaining the Q&A procedures up front. Visa was one of the few companies that allowed shareholders to call in with questions by phone last year, and they did it again this year. I’m hoping to see more companies take call-ins since it’s not difficult to do, and it adds more of a sense of spontaneity to meetings that many shareholders find to be scripted, dull, and impersonal in a virtual environment, especially when it’s audio only. Yes, the company can still cherry-pick the callers by asking what they plan to ask (as does happen on earning calls), but once the the mic goes live, the caller can say whatever they want.
Visa’s meeting flowed the way they all do: election of directors, ratification of auditor appointment, Say On Pay, other management proposals, and then any shareholder proposals. There were two management proposals and two shareholder proposals at this year’s meeting.
Management Proposals:
Approval of an amended and restated equity incentive compensation plan.
Amendment to the Certificate of Incorporation to give shareholders owning at least 15% (aggregated) the right to call a special meeting.
Shareholder Proposals:
Give stockholders the right to act by written consent.
Amend the company’s principles of executive compensation program to include CEO pay ratio and other factors.
If you are new to Corporate Governance Land and are wondering why the company would so generously offer its shareholders the right to call a special meeting, it’s most likely because a shareholder submitted a proposal asking Visa to do it. The Proxy Statement doesn’t explicitly say that, and you won’t find anything on the SEC’s website dedicated to shareholder proposals, but that’s what I’m guessing based on my experience with these types of management proposals. What’s interesting is that the Proxy Statement says:
[O]ur Board considered the results of benchmarking against other S&P 500 companies and the Company’s direct peers, which indicated that the 15% threshold is lower than the most prevalent special meeting threshold adopted by those companies.
Why would Visa go lower than their peer companies, thus making it easier for their shareholders to call a special meeting—something the board would rather not see? This was probably negotiated with the shareholder proponent in order to get them to withdraw the proposal. Management could have gone the route of putting a management proposal for a right to call a special meeting at a higher threshold (20%, 25% or whatever most of their peers do) up for a vote and then trying by obtain No Action relief from the SEC staff to exclude the proposal on the grounds that the shareholder proposal “directly conflicts with one of the company's own proposals to be submitted to shareholders at the same meeting” under Rule 14a-8(i)(9). But they decided to be expedient, save themselves the time and money of the No Action process, and look like good citizens of Corporate Governance Land by satisfying the shareholder (for now), offering up its own proposal and recommending all shareholders vote in favor of it. The fact is that even if they had offered the right at 20% or 25%, some shareholder (probably the same one) would propose to lower it to 15% or 10% the next year, so the company might as well just cave now and move on. The way I look at it, when your three largest holders hold over 21% of the outstanding shares (Vanguard 8.72%, BlackRock 7.39%, and FMR 5.21%), it would be very hard for a group to get to 15% without one of those three. And if one of those three is mad at you, your board is in deep trouble even if shareholders don’t have a special meeting option.
One thing Visa did that not all companies do is they solicited questions on the items of business during the formal portion of the meeting. Most tell shareholders that they will field any questions, even those on items to be voted on, during the Q&A session—after the voting polls have closed. No, it doesn’t follow logically to do it that way, but that's the way it's done in Corporate Governance Land. At this meeting, there were questions on the election of directors and ratification of the appointment of the auditors. I tried to submit a question on the management proposal for special meetings, but I guess I had to submit it in advance since they didn’t address it. (It related to the special meetings proposal. More on that later.)
The polls closed within a few seconds after those questions—a practice that I discussed a few months ago. The company announced the preliminary vote results right after they closed the polls:
Director Nominees: All elected.
Say on Pay: Approved.
Ratification of Appointment of Auditors: Approved.
New Equity Compensation Plan: Approved.
Special Meetings Proposal: Approved.
Shareholder Proposals:
Written consent: Not approved.
Executive compensation principles: Not approved.
The VSM Report didn’t address this, but the announcement of the preliminary vote results is a particular hang-up of mine. Companies should provide a breakdown of the votes cast "For" and "Against" at the meeting. It’s not hard do it, and the inspector of election has them right there. Why make people wait four business days to read the Form 8-K? Yes, these are pass-fail tests, but a lot of people do care about the numerical scores.
The formal portion of the program ended at 11:49, after which CEO Al Kelly gave a 12-minute presentation where he talked about the business, as well as ESG and CSR.
Q&A began at 12:02 p.m. The CEO fielded six questions (questioners unidentified), including one from me on a topic I wrote about in January:
Q: Last week the company announced that the company's political action committee “temporarily suspended all political donations as we review our candidate contribution guidelines.” Will you go further to consider completely dissolving the PAC, similar to what The Charles Schwab Corporation is doing? (dougchia [at] gmail [dot] com)
A: I think we were one of the very first companies that immediately after the insurrection on the Capitol on January 6, we made an immediate decision to temporarily suspend, as the questioner so notes, all political donations from our Political Action Committee fund. But beyond that, I will tell you that we do not have plans to completely dissolve the PAC.
Mr. Kelly wrapped up the meeting at 12:14. The company indicated that there were more questions that they wouldn’t get to during the meeting, but they would post answers to a “representative set” of questions on their IR site “as soon as practicable” after the meeting, which ended up being a few days later.
Here’s the question I had submitted earlier in the meeting about the special meetings proposal that didn’t get read:
Q: Regarding Item 5, Special Meetings, why are you adopting a 15% threshold, which you indicate is lower than your peers? The company currently has 2 shareholders who aggregate to 15%. This seems to give these 2 shareholders too much power. (dougchia [at] gmail [dot] com)
Here’s the answer they posted on the IR site:
A: As further described in Proposal 5 in our proxy statement for the 2021 Annual Meeting of Stockholders, the bylaw amendments set out the procedural requirements for stockholders to call a special meeting. Among other things, the bylaw amendments require shares to be held for at least one year to count toward the 15% ownership threshold and set out requirements to avoid holding duplicative or unnecessary special meetings. The Board determined that the special meeting right should be adopted following its ongoing review of corporate governance policies and profile, the policies and preferences of stockholders, peer benchmarking, and the written consent stockholder proposal.
Along with the replay and written Q&A, the company posted the full transcript of the meeting on the IR website, something I’m seeing more companies do.
Apple Inc. – February 23, 2021
Apple is one company that I thought might try to do something innovative, or at least flashy, at its VSM, as they are famous for doing at the events where they roll out new products. That didn’t happen here... quite a letdown. I guess they were OK with Microsoft beating them in this category.
The meeting started at 12:00 noon EST. Audio only. No video—not even video recordings to show off their cool technology. They did add cute little avatars next to each speaker’s name, but those avatars were fixed images. At least have them move their mouths like you can make your own avatar do on your iPhone! One technology they did make use of was closed captioning, which was instantaneous and very accurate. Apple general counsel Kate Adams announced clear instructions on how the Q&A would be conducted, both up front and in the written General Rules of Conduct for the meeting.
Apple got right down to business and only took six minutes to get to the presentation of the shareholder proposals, of which there were two:
Proxy access amendments
Improving the executive compensation program
Both were presented by pre-recorded messages from the proponents. After those were finished, Apple actually did leave the polls open for one more minute, using a visible timer to make sure it was exactly 60 seconds. More companies should do this.
After the polls closed, they announced the preliminary vote results:
Director Nominees: All elected
Ratification of Appointment of Auditors: Approved
Say On Pay: Approved
Shareholder Proposals:
Proxy access amendments: Not approved
Improving executive compensation program: Not approved
The formal portion of the meeting was adjourned at 12:14, and Apple CEO Tim Cook gave some remarks about the business for about 15 minutes.
Q&A started at 12:30 and lasted for half an hour, which is pretty long relative to others. Mr. Cook fielded 17 questions (questioners unidentified) and wrapped up at exactly 1:00. Unlike most annual meetings, Apple had a lot of media coverage. Some good reports can be found at CNBC, US News & World Report, MacRumors and 9to5Mac.
Replay: Could not find.
Transcript (Unofficial. Q&A session only)
Written Q&A: Could not find.
The Walt Disney Company – March 9, 2021
Disney was another company that I thought might get creative with the VSM, but they really didn't. Their annual meeting last year took place in Raleigh, NC on March 10, right before the COVID-19 lockdown started. This year, they went with an audio only VSM (also live-streamed on their IR site). No use of video at all, not even for the business presentation. This from one of the most exciting media companies on the planet! Seemed to me like a missed opportunity to sell Disney+ and Hulu subscriptions. With all of the amazing content they have, couldn’t they have treated their shareholders to some clips from Hamilton or Nomadland? Or sneak peeks from the remake of West Side Story or the next season of The Mandalorian?
One thing Disney did that I hadn’t seen or heard of before was they allowed shareholders to call in with questions by phone during the Q&A, but not send questions in advance of the meeting or submit them in writing during the meeting. Why do it this way? Maybe the thinking is that having only call-ins during the Q&A more closely resembles the in-person experience?
The meeting began at 1:00 p.m. EST with remarks from CEO Bob Iger (“my last shareholders meeting after 16 years as either CEO or Chairman,” or both) and general counsel/secretary Alan Braverman. A representative of Broadridge reported on shares in attendance and quorum. Then it was the same as we see everywhere… open polls, elect director nominees, ratify the appointment of the auditors, Say On Pay, present shareholder proposals, close polls, announce preliminary vote results, and adjourn the formal portion... all in 20 minutes.
Both shareholder proponents were on the line to present their proposals. Disney gave them each five minutes, which is more generous than the typical two or three.
Lobbying expenditures disclosure
Workers on the board
Polls closed immediately after the second proponent spoke, and then came the preliminary vote results:
Director Nominees: All elected with at least 92% support.
Ratification of Appointment of Auditors: Approved with 96% support.
Say On Pay: Approved with 68% support.
Shareholder Proposals:
Lobbying expenditures disclosure: Not approved, 33% support.
Workers on the board: Not approved, 6% support.
Bob Chapek, Disney’s new CEO, talked about the business for about 15 minutes, after which Q&A started at 1:36 and ended at 2:00. The company announced that each shareholder would be allowed one question and limited to two minutes. The company announced each questioner’s name and location as they opened their lines. They fielded 14 questions. Interestingly, four of the questions came from current or former “cast members,” which, according to Disney Fandom, is “a Disney employee that works at Disney Parks or at the Disney Store.” The moniker “comes from Walt Disney himself, when he was using theatrical terms for park operations.”
The first four questions were complete softballs, three being from cast members, which made me think that the shareholders who suspect cherry picking were onto something. However, a few challenging questions ended that. One was something to the effect of “Why did Disney blacklist actors with politically conservative views from the cast of The Mandalorian?” (Spoiler Alert: We won’t be seeing Cara Dune helping Din Djarin (a.k.a., Mando) protect Grogu (a.k.a., the Child/Asset/Baby Yoda) in any future episodes. Gina Carano’s tweets killed the character.) Then came a request to fire Kathy Kennedy, President of Lucasfilm. (Here’s an interesting take on that question.) I guess some Star Wars fanboys have discovered the power of shareholder democracy! Then there was a question from Philip Berman, once described in The New York Times as “a longtime shareholder and a fixture at the annual meetings of media companies” (as well as J&J’s annual meetings) about spinning off portions of Disney’s business.
A lot of you have asked me about how shareholders can be assured that companies are not cherry picking questions at VSMs. I don’t think there is any way to prove 100% transparency, and the company should screen out questions that contain foul language or are clearly offensive to people. Fielding both easy and hard questions, and allowing a shareholder to channel Gordon Gekko, at VSMs is one way to demonstrate that the board and management strive to be transparent and are open to the airing of dissenting views.
Transcript (not including Q&A session)
Written Q&A: Could not find.
AmerisourceBergen Corporation – March 11, 2021
The meeting started at 3:00 p.m. EST with an introduction and welcoming remarks from CEO Steve Collis. This was the first VSM for AmerisourceBergen and was audio only. The corporate secretary, Kourosh Pirouz, stated that questions were solicited in advance and gave instructions on how to submit questions during the meeting, but made no mention of posting written Q&A after the meeting.
Like always… polls were opened, directors were elected, auditor ratification was approved, Say On Pay was said, proposals were presented, polls were closed, and preliminary vote results were announced… all in under 11 minutes.
There was then a short management presentation. Q&A began at 3:17. They fielded five questions. Then the entire thing was over at 3:23.
Preliminary vote results:
Director Nominees: All elected.
Ratification of Appointment of Auditors: Approved.
Say On Pay: Approved.
Shareholder Proposals: Not approved.
I have no idea whether they reported only "approved" or "not approved" because the company knew they would be getting a pretty low Say On Pay vote, but doing it this way and then later disclosing in the Form 8-K filing that Say On Pay passed with only 52% support, combined with a meeting lasting under 25 minutes, makes one think they wanted to keep that result as quiet as possible. (Here’s an article in the Philly Enquirer where I comment on SOP@ABC.)
Transcript: Could not find.
Written Q&A: Could not find.
As you can see from above, the pre-season VSMs are showing a mixed bag of practices and not much new to make these meetings more engaging or informative. If this is an indication of what annual meetings over the next few months will be like, it’s going to be a yawner of a season as far as VSM critiquing goes. Pass the espresso beans, please!
One minute isn't long enough to vote, unless you have your proxy open and all you have to do is fill in one or two fields.