Business of Fintech

The new virtual reality of shareholder communications

  • Broadridge processes e-voting for 90% of public cos
  • Virtual shareholder meetings growing
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The new virtual reality of shareholder communications

Berkshire Hathaway is known for its lively annual shareholder meetings, featuring everything from a ping-pong match between chairman and CEO Warren Buffett and Microsoft cofounder Bill Gates to discount jewelry shopping.

This spring another aspect was added for the first time in the company’s history: an online live stream of the meeting in Omaha, Nebraska. Shareholders — and non-shareholders — were able to watch storied investor Buffett’s unscripted speech. This, along with Buffett’s investment in Apple in May, is perhaps another sign that America’s third-richest person is shrugging off his aversion to technology. But larger than that, it is also the latest high-profile example of how technology is changing companies’ communications with their shareholders. Shareholder communications remain a market ripe for growth and disruption.

The market for virtual meetings

Several players are making a push for expanding virtual meetings and better and more-secure online voting systems for shareholders. The main player in the space remains Broadridge Financial Solutions, which processes electronic voting for 90% of public companies, according to research by SWIFT. Broadridge has seen much growth in recent years, especially in services for virtual or hybrid meetings.

When it first launched its virtual shareholder meeting services in 2009, four companies held such meetings. This year, Broadridge is expecting to facilitate meetings for 200 public companies, 80% of them virtual-only and 20% hybrid, or a mix of in-person activities and an online broadcast, like Berkshire Hathaway did.

“We are getting more and more inquiries about it as companies see their peers using the technology,” Cathy Conlon, Broadridge vice president for strategy and business development, said in a phone interview. Those that have embraced virtual meetings include companies ranging from tech giant Intel to apparel-maker Lululemon Athletica.

“It’s not just tech companies, it’s really across all sorts of industries,” Conlon said. She attributed the increase to the general growth in popularity of online streaming and the advent of smartphones that give even more flexibility to those who want to participate in virtual meetings.

“It’s such a convenience for shareholders,” she said.

Currently, online-only meetings are allowed in 24 U.S. states, and Conlon said companies need to decide how to best accommodate their shareholders.

Not everyone approves

The online-only meetings have not been without controversy. The Council of Institutional Investors, a non-profit group advocating for effective corporate governance and protecting shareholders’ rights, has come out against online-only meetings, even though they may save money and enable more people to tune in.

“It also enables a company to manage troublesome shareholders and avoid uncomfortable questions,” said Amy Borrus, deputy director at the Council of Institutional Investors in Washington, D.C. “That is not a good thing.”

Borrus and others compare virtual-only meetings to the practice of holding shareholder meetings in far-flung places or at odd times. Research by New York University in 2014 showed that companies who held meetings in remote locations often experienced sub-par performance in the following year, indicating that they wanted their meetings to remain low-profile when they were harboring negative developments that hadn’t yet reached the public.

But David Yermack, one of the NYU professors who carried out the research, said it is still too early to tell what impact virtual-only shareholder meetings may have. Although the number of such meetings has grown, it is still a small minority of companies that hold them, he said.

“I think that, in fairness, we need to wait a few more years until enough data is generated to evaluate the pros and cons of online meetings,” Yermack said. He did say that companies’ motivations may be to keep a low profile, but he also pointed to the advent of virtual quarterly-earnings announcements, and said that replacing in-person conferences with phone and video conferences has actually boosted participation.

Alternatives to e-voting

Betting that the trend will keep moving forward, Broadridge recently invested in blockchain technology, which it says could be implemented to make voting at virtual meetings more secure.

At the same time, alternatives to Broadridge are in the works, although they haven’t yet emerged fully into the space.

Several local regulatory institutions around the world have developed their own local systems for shareholder e-voting and virtual meetings, including the Israel Securities Authority and Russia’s National Settlement Depository.

In another low-profile, but potentially significant development, Nasdaq is currently testing an e-voting system based on blockchain technology on its affiliate Tallinn Stock Exchange in Estonia.

While it remains skeptical of virtual-only meetings, the Council of Institutional Investors said it welcomes more secure and user-friendly voting systems, as well as adding virtual elements to in-person meetings, as Berkshire Hathaway did.  The council also stressed a need to refine regulations for how technology is used to facilitate shareholder communications.

“There are no real best practices for these uses of technology,” Borrus said. “There’s no real rules of the road yet.”

 

Photo credit: SarahPAC-USA via VisualHunt.com / CC BY-ND

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