Bottom Line: When a company chooses to hold its shareholder meeting in a distant location or at an odd time, executives might be trying to avoid revealing bad news.
As best we can tell, the first shareholder meeting took place in the early 1600s when the English East India Company’s directors invited shareholders to help elect new board members, review annual reports, and give suggestions to or ask questions of managers. Fast forward to today, and annual shareholder meetings have more or less the same purpose: to give shareholders an opportunity to discuss a firm’s fortunes (or misfortunes) with executives face-to-face and cast votes on a range of issues.
But what if the meetings’ planners hope not to have a large turnout? That’s when you might see annual meetings scheduled for peculiar times or places — say, an early morning following a national holiday, or a venue located thousands of miles away from a company’s headquarters. After all, researchers have established that the majority of a firm’s shareholders and board members tend to live in its community, as do the most insightful stock analysts and media members — all of whom might be put off by a long-distance trek to attend an annual meeting, especially one held at an odd hour.
Although an assortment of state and federal laws require that publicly traded firms hold annual meetings, companies are free to choose the location, day of the week, and start time. Accordingly, the authors of a new study decided to use a novel bit of information — namely, the location and timing of an annual meeting — to determine whether there was a link between firm performance and the decision to stage the shareholder gathering at a remote venue or an unusual time. Could the scheduling details of these meetings be a valuable clue to a firm’s underlying prospects?
By merging several databases, the authors were able to obtain information on the timing and location of public companies’ yearly shareholder gatherings as well as special or extraordinary meetings called in order to discuss a hot-button issue; the firms’ headquarters addresses; the agendas and voting records of each meeting; and corporate stock returns for the period surrounding an annual summit. Their sample included almost 10,000 annual meetings held by more than 2,300 companies.
Most of the firms in the study chose to base their annual shareholder meeting near headquarters; 65 percent of meetings occurred within a mile of a company’s home office and an additional 12 percent took place no more than 10 miles away. However, more than 1,000 annual gatherings and some 50 special or extraordinary meetings were held at sites farther than 100 miles away from corporate headquarters.
But it’s what happened after the meetings in these far-flung locations that really caught the eye. On average, companies that held long-distance annual meetings, especially more than 100 miles from headquarters, had significant and negative abnormal stock returns — or significant deviations from analysts’ expected price — during the subsequent six months. In contrast, the companies that held their meetings close to headquarters reported the most favorable unanticipated earnings during the subsequent quarter and year. According to the authors’ calculations, moving a meeting 100 miles from headquarters was associated with a 3.5 percent drop in stock performance over the following six months.
Moving a meeting 100 miles from headquarters was associated with a 3.5 percent drop in stock performance over the next six months.
Why do firms travel to faraway locations to meet? One might expect that they would do so on the heels of a particularly poor year, in hopes of avoiding a sea of angry shareholders, but that’s not the case, the authors found. The distance between annual meeting site and headquarters does not increase in the wake of subpar stock returns or when the agenda includes hotly contested board elections or divisive shareholder proposals. Indeed, during these trying circumstances, when a company is coming off a tough period or facing difficult decisions, executives may prefer to meet on their own turf, surrounded by their own security, and ensconced in familiar conference rooms.
Rather, it is future performance, not past performance, that seems to strongly correlate with whether a firm will opt for a distant locale. By moving the meeting to a faraway venue, managers appear to be trying to avoid the sort of uncomfortable questions about the firm’s prospects that shareholders can pose during open-mike sessions, or that local media are likely to raise. These executives don’t want to go on record with downbeat forecasts or be put in the position of having to spill the beans about any struggling projects, strategic failures, or anticipated drops in performance that can spook investors.
In other words, the motivation for staging distant annual meetings — and in effect discouraging attendance — seems to have little to do with executives’ desire to avoid a confrontation with already displeased shareholders, and much to do with their concerns about revealing information that will make shareholders displeased in the near future. What’s done is done, but nobody wants to be the harbinger of bad times, apparently.
The authors’ analysis of the timing of meetings also turned up some patterns. They found that most annual gatherings kicked off at 10 a.m. and occurred midweek. Deviating from this schedule had the most pronounced effect on the number of votes cast on agenda items. For example, at meetings that were held very early (before 9 a.m.) or late (after 4 p.m.), voter turnout was between 1 and 3 percent lower than at meetings held during “normal” business hours; the number of votes also dropped 4 percent for weekend meetings. Of course, shareholders can vote in absentia during the time leading up to a meeting, but this evidence indicates that scheduling meetings for odd times nevertheless discourages a fair number of shareholders from taking part.
One approach that can help shareholders who can’t make it to far-flung meetings, but who still want to know what is taking place, is to pay attention to the number of analysts tracking a given firm. The more market experts following a particular company, the authors found, the more likely it is that at least some of them will turn up even at a remote meeting and could discover the kind of information executives want to keep quiet.
Source: “Evasive Shareholder Meetings,” by Yuanzhi Li (Temple University) and David Yermack (New York University), Journal of Corporate Finance, June 2016, vol. 38