Today in Barron’s, reporter Rebecca Ungarino details how public companies are increasingly using online-only (as opposed to in-person) annual meeting rules to “control the narrative” by “increasingly trying to limit” the voices of shareholders when they present their proposals for a vote to their fellow investors.
NLPC, a shareholder in several major corporations that has sponsored dozens of proposals the past several years, is among those who have faced limitations upon their presentations. From the article (subscriber-only):
The National Legal and Policy Center, a conservative advocacy group, ran into a similar problem at Mondelēz International’s annual meeting.
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…
“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.”
A year ago NLPC Chairman Peter Flaherty opined for Real Clear Markets about “The Incredible Shrinking Shareholders’ Meeting,” after he found his speech was curtailed — and he was arrested — at the Berkshire Hathaway annual meeting:
I had never before been arrested but maybe I shouldn’t have been surprised. Increasingly, public companies are seeking to control and limit what happens at their annual meetings.
At least the Berkshire meeting was in person. Most public companies now meet virtually, a practice adopted during COVID. When the pandemic receded, management teams decided they rather liked the control that technology brought, so they stayed with the telephonic meeting…
The first casualty of the phone-in meeting was the amount of time allotted to proposal proponents. When I first began as a shareholder activist in 2004, it was not uncommon to get five minutes, and the limit was only gently enforced. CEOs realized that it was not a great look to cut off a complaining shareholder.
This year, we were allocated a grand total of two minutes on the Apple phone call notwithstanding the seriousness of our proposal asking for a risk assessment of doing business in China. And two minutes means two minutes. There’s not much deference or collegiality over the phone. If someone at Apple simply pushes a button, you are gone.
Companies whine about shareholders airing their complaints at their annual meetings, but the thin-skinned executives and board members need to get over themselves. The rules are stacked strongly in their favor, including in the following ways:
- Each shareholder may sponsor only one proposal each year
- Proponents must own stock worth $25,000 for one year, $15,000 for two years, or $2,000 for three years to be eligible to submit a proposal
- Proponents must prove to the company that they own enough shares to be eligible to bring a proposal, which is an onerous bureaucratic process
- Companies can seek permission from the Securities and Exchange Commission to exclude a proposal, if it has “technical deficiencies,” tries to advise on a company’s “ordinary business” or “micromanage,” or if the topic is not deemed significant enough to be considered
- Proposals can be only 500 words long
- If a proposal makes it to a proxy statement, the company has an unlimited word count to argue in opposition to it
- At most annual meetings, proponents are limited to only two or three minutes to speak on behalf of their proposals
- As explained in the Barron’s article, companies are increasingly trying to further limit proponents at their annual meetings in what they are allowed to say
- Following shareholder proponent presentations, investor voting is immediately ended, allowing for almost no time for fellow stock owners to submit their ballots
- Companies almost always have the large investment houses on their sides in opposition to proposals
Nonetheless corporations and their high-powered lawyers (both internally and outside firms) go to extremes every year to increase the difficulty for shareholders to make their voices heard. Don’t feel sorry for them.
