Virtually Better or Worse?

National concerns regarding the impact of technology-related issues in financial markets (see here) should inspire reflection on recently adopted state statutes that allow corporations to host electronic shareholder meetings.  Over the last ten years, several states have adopted statutes that permit corporations to allow virtual shareholder participation in annual shareholder meetings. Some states even permit corporations to hold electronic “remote access only” annual shareholder meetings — meaning, in lieu of a meeting at a physical location, shareholders may only participate in an annual meeting through electronic media.

Because we are a technology-dependent generation, many applaud the idea of virtual shareholder participation or electronic annual shareholder meetings. Supporters argue that virtual meetings are less expensive than in-person meetings and virtual communication engenders enhanced participation by a broader shareholder demographic. Opponents, however, challenge the assumption that virtual participation and electronic meetings are less expensive, pointing to the fixed and recurring expenses that a company incurs in order to transition to virtual meetings and to maintain the necessary electronic meeting technology. In addition, some have expressed concerns that management or directors may use virtual meetings to insulate themselves from disgruntled shareholders or to disregard hostile questions submitted via email in advance of electronic meetings. Other concerns arise directly from the use of technology, such as the ability to verify shareholders’ identity and to assess and record accurately shareholder votes during an electronic meeting. While some states have adopted statutes attempting to address concerns related to virtual shareholder participation and electronic meetings, many of these concerns remain unresolved.

Lisa Fairfax has insightfully surveyed the states that have adopted virtual participation or electronic meeting statutes and concludes that the number of states addressing virtual participation and/or electronic meetings signals the significance of virtual alternatives. Fairfax and other scholars, however, remain skeptical about the proposed benefits of virtual participation and electronic meetings. In addition, the small number of corporations that have attempted to hold electronic shareholder meetings indicates that corporations are also gingerly approaching this wave of innovation. Until some of the more critical concerns regarding electronic shareholder meetings can be addressed, corporations’ caution may well be prudent.

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