Virtual investor meetings are eroding shareholder rights, advocates warn

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Dozens of Canada’s largest investors are urging public companies to preserve their in-person annual general meetings, warning that the shift to virtual-only formats allows management teams to silence dissent.

In an open letter being sent to members of the S&P/TSX 60 Index on Thursday, a group of 38 institutional investors, advisers, portfolio managers and non-profits representing a combined $1.7-trillion in assets under management and advisory say virtual-meeting procedures are undermining shareholder rights.

Proponents argue that virtual meetings save money and allow more shareholders to participate. However, the British Columbia General Employees’ Union (BCGEU) – which co-ordinated the letter – argues that virtual-only meetings give management teams the power to cherry pick which questions they want to answer or even edit the wording of questions.

“Virtual shareholder meetings are poised to remain a key aspect of the corporate landscape,” the investor letter states. “In theory, virtual meetings present the opportunity for a larger number of shareholders to engage in constructive dialogue with issuers. However, the shift to virtual-only meetings has not enriched shareholder democracy. In fact, it has eroded it.”

Virtual-only AGMs are relatively new, having been almost non-existent prior to the public health restrictions introduced early in the COVID-19 pandemic. Yet despite those restrictions being lifted, the trend toward this type of meeting has continued to accelerate.

According to data collected by Amandeep Sandhu of Sandhu ESG Law, 57 per cent of TSX-60 constituent companies held virtual-only meetings during the 2023 proxy season, up from 54 per cent in 2020.

That number was zero as recently as 2019.

Barrick Gold Corp. ABX-T will be holding a virtual-only AGM on April 30. Responding to one shareholder’s e-mail protesting against the decision, Barrick spokesperson Lois Wark said shareholders would have “substantially the same opportunity” to participate and ask questions “as they would if attending the meeting in person.”

Electronics company Celestica Inc. CLS-N originally planned to hold a virtual-only meeting on April 29, but in late February announced it would instead use a hybrid format.

There have been 12 shareholder resolutions put on the ballot at AGMs so far this year calling for companies to commit to maintaining an in-person component for their future meetings. Most have either passed or received support from at least 45 per cent of shareholders despite several instances where a company’s board of directors recommended voting against those resolutions.

Two recent cases are especially notable. Canadian Imperial Bank of Commerce recommended shareholders vote against the resolution at its AGM last week, but it received majority support nonetheless.

The same thing happened at the Bank of Montreal AGM on Tuesday, when 50.7 per cent of shareholders went against the board’s recommendation and voted in favour of the resolution to preserve the physical component of future meetings. Both CIBC and BMO held hybrid meetings this year, but the resolutions were intended to ensure that banks’ future AGMs will permit in-person attendance.

“You have to keep in mind that it is rare for shareholder proposals in Canada to receive majority support,” said John Vizikas, associate director and head of Canada research for proxy advisory firm Institutional Shareholder Services. “Last year, only one received majority support and that one was also supported by management.”

At the Air Canada AGM last month, where the board did not make any recommendation, a similar resolution received support from more than 82 per cent of shareholders.

That kind of result is dramatic, said Emma Pullman, the BCGEU’s head of shareholder engagement and ESG.

“Shareholders have very clearly indicated that they still value the in-person element,” she said.

“If you ask a question of an executive at a virtual-only meeting, you have to type it into a box and you don’t know if it is going to be edited or omitted, and if it is not answered at all, you can’t even raise a point of order,” Ms. Pullman said. “But in a meeting space where you are surrounded by other investors, you do have that ability and it becomes obvious when a question is being dodged.”

Oumayma Ouzane, director of responsible investment at Desjardins and one of the letter’s 38 signatories, said transparency and inclusivity related to voting and shareholder engagement at AGMs are crucial to Desjardins global asset management’s investment approach.

“It is the one occasion, the one opportunity, once a year, for investors and the company to be in the same place at the same time and discuss voting, discuss results, bring items to the agenda and have a live engagement,” Ms. Ouzane said in an interview from Montreal. “It is crucial that we keep those rights.”

Proxy advisory firms Glass Lewis and ISS are both broadly supportive of efforts to ensure AGMs continue to have an in-person component. ISS has supported all 12 resolutions made so far this year and Glass Lewis even includes supportive language in its Canadian benchmark policy guidelines for 2024.

“Glass Lewis believes that virtual-meeting technology can be a useful complement to a traditional, in-person shareholder meeting,” reads an excerpt from that document. “However, we also believe that virtual-only meetings have the potential to curb the ability of a company’s shareholders to meaningfully communicate with the company’s management.”

Regulators, meanwhile, have struggled to ensure companies holding virtual-only AGMs offer the same level of access for shareholders as they would expect from an in-person meeting.

The Canadian Securities Administrators, the national umbrella group of provincial and territorial regulators, has made three attempts since 2020 to offer guidance on virtual shareholder meetings. Each time, the CSA has faced criticism for continuing to provide companies with too much latitude to silence shareholder dissent.

The letter asks members of the TSX-60 to adopt best practices for virtual-only meetings that include full transparent access to the exact questions shareholders ask, the answers provided and a publicly available recording and transcript of the entire meeting posted on corporate websites.

“This shouldn’t be something we have to fight for company by company,” said Kevin Thomas, chief executive of the Shareholder Association for Research and Education, a non-profit organization that represents institutional investors. “And yet, absent regulatory authorities stepping in, we are being forced to do just that.”

“The AGM is the shareholder’s meeting, not the company’s meeting,” Mr. Thomas said. “We have to have full participation, clarity and transparency, otherwise the board remains entirely in control of the company and shareholders have no real voice.”