Leveling the Shareholder Playing Field
Because of health and safety precautions that became necessary as a result of the pandemic, companies have turned to technology to turn what had been in-person engagement opportunities to virtual ones, including various meetings (such as annual shareholder meetings), stakeholder sessions, and roadshows ahead of initial public offerings. By going virtual, innovation and digitalization are providing an opportunity to level the playing field for all shareholders.
“I think that we’ve seen some fundamental changes are here to stay, and the virtual roadshow is working very well,” Nasdaq Stock Exchange President Nelson Griggs said on CNBC earlier this summer.
Pre-pandemic IPO roadshows typically lasted four days, and coronavirus-related travel restrictions initially stalled IPO activity. Now, however, with the technology to connect to anyone anywhere almost instantaneously, companies are able to engage with more investors.
“We were certain that once a roadshow was out of the question, we would see a drop in the number of IPOs,” Griggs said in an interview with Calcalist. “But the roadshows became virtual, and they turned out to be even more effective as this way you can reach more organizations in four days than you could before.”
Zentalis Pharmaceuticals (ZNTL) Chief Executive Officer Anthony Sun, who prepared for his stock market listing from his children’s bedroom, acknowledged that traditional engagement norms have been upended as a result of the coronavirus. “The expectation was you had to meet people in person, and it had to take weeks, and now people are asking ‘why?’ This is an opportunity to do it in a brand new way,” Sun told the Financial Times.
Utilizing innovative technologies has not only perhaps permanently altered the way companies engage with potential shareholders pre-IPO, but they could have a significant impact on facilitating shareholder democracy through virtual annual meetings.
Like roadshows, annual shareholder meetings moved to digital platforms amid the pandemic. The U.S. Securities and Exchange Commission provided regulatory flexibility to companies seeking to change the date and location of these meetings and use new technologies, since virtual shareholder meetings avoid the need for in-person shareholder attendance. It was also crucial to ensure that shareholders and other market participants are informed of any changes.
The forced switch to virtual annual meetings has provided an opportunity to re-think the purpose and prevailing practice of annual meetings, according to University of Wisconsin Law School Assistant Professor Yaron Nili and University of Oklahoma College of Law Professor Megan Shaner, authors of the paper, Back to the Future? Reclaiming Shareholder Democracy through Virtual Annual Meetings.
“The annual meeting was designed to act as the primary space for authentic and organic shareholder interaction with directors, management, and each other. Notably, as ownership of public corporations has become more dispersed and institutional investors holdings continue to increase, the modern annual meeting falls well short of this ideal in most cases,” wrote Nili and Shaner. “But a virtual meeting offers the opportunity to reclaim that important facet of shareholder democracy.”
They argue that the accessibility of virtual meetings can increase retail investor turnout, a critical focus given the surge of retail investors into the market amid the pandemic. Furthermore, online platforms can be leveraged to promote meaningful participation rather than stifling it. By providing investors of all stripes with an opportunity to participate, it helps to ensure that corporate strategies reflect the views of all shareholders.
“With the uncertainty surrounding when the public health crisis arising from COVID-19 will be resolved, companies may be forced to host another annual meeting season remotely in 2021 whether they want to or not,” said Nili and Shaner. “We...should use this as an opportunity to meaningfully revisit the annual meeting’s purpose and the role that technology can play in promoting it.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.