Rogue Missives Friday, August 22, 1997

Annual Shareholder's Meetings Go Online
--Louis Corrigan (RgeSeymour)

When you finally own a $50 million stake in a public company, then you'll probably want to fly out for the annual shareholders meeting. You will want to press some flesh, make sure the directors remember you and your habit of keeping corporate boards honest, make sure management is delivering on the plans they outlined the year before. So what if you have to travel a thousand miles and spend hundreds of dollars to make your voice heard? Not only can you afford to make the trip, you can't really afford not to.

But until that day comes, what do you do when a company you own holds its annual meeting? If it's a block away, you might drop by, assuming the scheduling doesn't interfere with your job, your family, your vacation. If it's three states away, well, the cost and inconvenience of attending may not be worth it, even if you've got a nice chunk of your retirement income wrapped up in your 400 shares. Of course, it's only reasonable that the largest shareholders get their voices heard. Yet, is it really in anyone's interests for hundreds or thousands of small investors to miss out on the opportunity to hear the Chairman's speech, to share their thoughts about the company's direction, to ask questions of the folks managing their business?

Now imagine turning on your computer, launching your web browser, and plugging in the URL for your company's live Internet simulcast of the annual meeting. Click on a few icons and you're hooked up to a live audio stream of the company's Chair presenting highlights of the past year and the company's strategy going forward. And you're treated to the same Powerpoint slide presentation being seen by the shareholders actually at the meeting. You're concerned about a new subsidiary, so you click on another icon to send in an e-mail to ask a question. In the Q&A, the CEO tackles your question, a few from the folks actually present at the meeting, a handful of others from fellow cyber-attendees, plus a couple that have been e-mailed in the days leading up to the event. The Chair calls for proxies, and you fill yours out online and send it in. Shareholders who couldn't attend the live cybercast have already sent in their proxies via e-mail, and they can watch the "tape delayed" version of the meeting at their convenience.

It all sounds great. It also offers a great solution to the sad fact that very few shareholders actually attend annual shareholder meetings. Of course, there are exceptions, such as the annual "investors' Woodstock" put on each year by Warren Buffett and BERKSHIRE HATHAWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRK.A)") else Response.Write("(NYSE: BRK.A)") end if %>, the rallies 'round Bill Gates at the annual MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> meeting, or the throngs that visited IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> headquarters in Utah during a giddier era. Shareholders are also drawn by the occasional proxy fight or by the spectacle of a company like ARCHER DANIELS MIDLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADM)") else Response.Write("(NYSE: ADM)") end if %> being embarrassed-to-death by its own management. But at your average shareholders meeting, shareholders are often in short supply.

The even sadder fact is that many companies have been happy to keep it that way. Before the rise of large institutional investors challenged the reign of imperial managers with something like an "investor capitalism," many managers-slash-directors considered shareholders, especially individual investors, as a distraction. Many probably still do.

But that's no way to run a public company. Rogue has repeatedly returned to two distinct but related issues: shareholders as owners and the obligation a company has to communicate with its owners in a timely and equitable manner. Each entails certain responsibilities. Owning part of a company involves more than trying to catch technical buy and sell signals for a quick trading profit. It means putting in some sweat equity to understand the business and to participate in shaping that business, at least to the extent of making informed decisions come proxy time. But the sad history of corporate governance in America is rich with examples of corporate managers and their director cronies usurping shareholder power by putting up obstacles, from staggered boards to poison pills, that make it difficult for shareholders to exercise control. This paranoid gatekeeping has simply been replicated even as the corporate communications process has opened up. Even today, many companies prefer to use Wall Street to help filter and spin its quarterly earnings updates via analyst conference calls that individual investors may not even get to hear, even on a delayed basis.

All of this is gradually changing, and a wealth of new communications technologies are helping spark the transformation. Enlightened companies such as GENZYME <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %> now use a broad array of methods to keep shareholders informed. The possibilities include an information-packed web site complete with an archive of press releases and financial reports, the chance to receive the latest press releases automatically via e-mail, opportunities for fax-on-demand, tape-delayed access to analyst conference calls, and even regular monitoring of the Fool message boards. The idea is that investor relations is, in the best sense, a branch of customer service. Just as it's in a company's long-term interest to nurture relationships with the people who buy its products, it's also in its best interest to nurture relationships with the folks who buy its shares. The best companies, then, will seek to cultivate a community of informed investors, to go the extra mile to create shareholders who are owners not traders.

BELL& HOWELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHW)") else Response.Write("(NYSE: BHW)") end if %>, the 90-year-old information retrieval company based in Skokie, Illinois, gets a star for going that extra mile, taking the shareholder revolution into new terrain. In May 1996, Bell & Howell became the first company to broadcast it annual meeting live over the Internet. The meeting was accessible to anyone with a 486 33-megahertz PC or Macintosh equivalent plus at least a 14.4 modem, direct access through an Internet Service Provider, browser software, and a 16-bit sound card. Progressive Network's RealAudio software could be downloaded free of charge via AudioNet, the fast-growing Dallas-based company that bills itself as "The Audio Broadcast Network on the Internet") and managed the event.

In 1996, Bell & Howell shareholders got the live audio feed plus the chance to ask questions via e-mail. On the second go round this past May, investors also got a chance to see the actual slide presentation while listening to the Chairman's speech. And for the first time, they also had a chance to vote their proxies electronically. Following each meeting, the event remained accessible online, through Bell & Howell's web site www.bellhowell.com or AudioNet's archive of business events www.audionet.com/business/events. According to Bell & Howell spokesperson Hank D'Ambrosio, the cybercasts have been a hit. "As far as we're concerned, it's gone extremely well," he said. "Our motivation was to really be able to broadcast our message as widely as possible and this was a very appropriate vehicle for us to use. It was not very expensive. It was high-tech, and we like to consider ourselves a high-tech company."

D'Ambrosio said that the live meeting this year attracted 1761 "hits," substantially more than the "couple of hundred" in 1996. It's impossible to say how many actual cyber-attendees were present for the whole meeting. But for context, only about 40 people attended the meeting in Skokie, and that number included board members and other corporate staffers. The company received about 15 e-mail questions last year and nine this year.

The online proxy voting also worked extremely well. "Obviously we had to go through all of the appropriate steps," D'Ambrosio said. "We got an opinion from a Delaware counsel, which we needed to do for the SEC, to tell us what steps we needed to go through to ensure the privacy" and integrity of the voting.

He said the proxy voting went through a secured server and that everyone who received a proxy statement got a PIN number so the transfer agent could identify the shareholder. The company also made the proxy voting as user-friendly as possible, laying out on its home page both the ballot and the precise steps in the voting process. Shareholders filled in their names, the PIN number they'd been sent, and a variety of other information to verify that they were indeed qualifying shareholders. Then it was just a matter of point and click.

"We had about 25% of our shares voted online," D'Ambrosio said, suggesting that shareholders controlling a "couple of big blocks" likely accounted for the strong online turnout.

The only drawback to the current system is that shares held by investors in "street name" (which may account for most shares held directly by individual investors) could not be voted over the Internet since the proxies are literally voted via the brokerage firms acting as holding agents. On the other hand, some of those holding agents are working to offer their own proxy voting via the Internet. First Chicago Trust Company of New York, for example, provides such a service.

D'Ambrosio said that while he doesn't have a precise calculation, he figures the cybercast cost about $10,000 to $15,000. That includes paying AudioNet, covering outside costs such as microphones and the computer and modem links, and getting some help from their PR firm. "That's not a lot of money for what we were able to accomplish."

Indeed, it's a small price to pay to generate some positive publicity, get the company's message out to a wider scope of investors, and save its shareholders the cost and hassle of traveling to Skokie for an 8 a.m. meeting. Aside from a few investors who complained about technical problems in accessing the broadcast, a common problem when dealing with the Internet, shareholders liked the idea, D'Ambrosio said.

Bell & Howell's experiment has gained some attention from other companies entertaining the idea of taking their annual meetings into cyberspace. D'Ambrosio said the company has gotten "lots of feedback" including requests to do presentations about the experience to organizations such as the National Investor Relations Institute (NIRI) and an upcoming public relations conference in Chicago. "The fairest thing to say is that virtually all of [the attention] has been very positive," he said.

The company's even gotten inquiries from some fairly large companies and some consultants interested in learning more. "My guess is that as more companies get more comfortable and more familiar with [broadcasting meetings on the Internet], many of them will be trying it also. It's a good way to get the message across."

Some companies are beginning to dabble with this new communications outlet. Microsoft recently offered a live Internet feed of its annual meeting as well as an analyst conference call. Of course, since Microsoft's own NetShow software is designed to make such events possible, it's only logical that Microsoft would help lead the way. INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>, AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>, and Genzyme have also offered live or pre-recorded versions of recent meetings with analysts or shareholders.

These events and others can be accessed through AudioNet's archives. Though less than two years old, AudioNet has positioned itself as the leader in the business of making such productions happen. The company accesses the event via satellite feed or by simply dialing into a conference call, and then broadcasts the event onto the Internet from its Dallas offices. AudioNet's Eric Grafsprom says the firm's 375 servers and growing staff make it capable of handling even largescale events that demand serious bandwidth. The company is clearly looking to expand its financial services area, which is good news for wired investors.

Considering the expense of some companies' shareholder meetings and the exorbitant cost of mailing out glossy annual reports to thousands of investors, steering some shareholders onto the Internet may eventually turn out to be a cost-saver as well. As Microsoft's communications manager Tony Dirksen told Investor's Business Daily in April, "Our gospel is that online links to people should be readily available. We send out over 500,000 annual reports a year. That's a lot of paper. It would be good to distribute it over the Internet."

But the Securities and Exchange Commission (SEC) has authored some rather complex guidelines requiring companies offer traditional hard copy information unless a shareholder explicitly requests an Internet-only packet (which remains rare). Attracting shareholders for online meetings may be one way to accelerate this move toward a potentially less expensive and more equitable digital management of investor relations.

Cybercasting an annual shareholders meeting can improve a company's communications with shareholders. It's not a panacea for making shareholders better owners or improving corporate management. Still, every little bit that makes it easier for shareholders to keep up with the companies they own and to exercise ownership control should be applauded.

-Louis Corrigan ([email protected])

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