A Peek Into Shareholder Meetings

When investors think about shareholder meetings, the first thing that comes to mind may be the carnival-like atmosphere that surrounds Berkshire Hathaway Inc.'s (BRK.A, BRK.B) well-known annual gathering. Or perhaps it's the protests and controversy that often accompany the annual meetings at large publicly traded firms as shareholders argue against a wide range of corporate policies in a very public way. While both scenarios do occur, they represent only a slice of the full range of shareholder meeting experiences. Most annual meetings are not nearly as glamorous, exciting or controversial.

Before exploring the meetings themselves, a bit of insight into the purpose of the meetings will help set the stage. From the company's perspective, shareholder meetings are a regulatory requirement. Technically, notification of the meeting date is not even required to be sent to shareholders because the meeting date is stated in each company's bylaws and the annual meeting takes place on the same date each year. Despite that, formal notification of the meeting date and time is generally sent to investors, as it is unlikely that many shareholders have read the bylaws, and the media would have an opportunity to sensationalize the fact that a firm was acting in an unethical manner—one that could be construed as an attempt to hide the date and time of its meeting.

Notification of the meeting's date and time will include a copy of the meeting's agenda, which is often centered around the election of members to the board of directors, approval of an accounting firm to review the company's financial records and an opportunity to vote on any proposals that have been put before the board, either by shareholders or by company management. The text of the invitation is often dry and formulaic. A typical notice is likely to read something like this:

ABC Corporation will conduct its Annual Meeting at 9 a.m. on Wednesday, July 19 at the XYZ Hotel located at 123 Main Street, New York, N.Y. Shareholders will act upon the matters outlined in the Notice of Annual Meeting of Shareholders above, including the election of the two directors named in the Proxy Statement, ratification of the selection of the Independent Registered Public Accounting Firm (the "Independent Auditors") of ABC Corporation and the consideration of any other matters that may come before the board.

It's a legal notice, with little fanfare attached. The meeting is held during working hours, making it inconvenient for shareholders who have full-time jobs to attend. Shareholders who cannot attend the meeting in person are encouraged to vote by proxy, which can be done online or by mail. Clearly, the event advertised by the official notice is not a party, but rather an administrative function based on regulatory requirements. Of course, shareholders have a legal right to attend annual meetings. It is, after all, the one time each year that they have an opportunity to sit in the same room with representatives from the company.

Shareholder meetings are generally administrative sessions that follow a specific format that has been set forth in advance of the meeting. The format dictates parliamentary procedure, the amount of time allocated for each speaker and procedures for shareholders who wish to make statements. A corporate secretary, attorney or other official often presides over the process. Even for a big, popular firm like Warren Buffett's Berkshire Hathaway, the business portion of the agenda takes only about 20 minutes. The election of directors and votes on shareholder proposals are handled in a largely scripted manner. At the conclusion of the meeting, the minutes are formally recorded.

In many cases, the publicity surrounding shareholder proposals is far more exciting than the actual meetings. Accordingly, the level of hoopla surrounding shareholder meetings generally has a direct correlation to how broadly the company's shares are held. Large public companies such as Walt Disney Co. (DIS) and General Electric Corp. (GE) attract the lion's share of attention. Accordingly, shareholders often put forth protest votes against company policies. GE, for example, has faced protest votes seeking to get the firm to stop engaging in the manufacture of components that can be used to construct landmines. Other firms have faced votes designed to change their environmental policies, eliminate benefits for same-sex partners and a host of other proposals.

Executive compensation has also become a hot topic in recent years. With workers' wages stagnating and CEO compensation soaring, companies are now required to seek non-binding shareholder votes approving executive compensation packages. While the compensation packages often involve astronomical numbers and lavish perks ranging from corporate jets to company funded living quarters, the vote is nonbinding, which means that executive compensation packages are nearly always approved, regardless of the results of the vote.

It is important to keep in mind that mutual funds, hedge funds and other investment vehicles controlled by financial services companies usually control the majority of a corporation's publicly traded stock. While individual investors may have opinions of various topics and are able to express those opinions by putting forth proposals, the biggest voting blocks are often the financial institutions, pension funds and similar entities that hold large stakes in the firms. Getting a handful of Wall Street firms to agree with the firm's positions, either for or against a given proposal, is usually more than enough support to squash any dissent.

Of course, there is an exception to every rule, and Berkshire Hathaway, the company run by legendary investor Warren Buffett, sets the benchmark standard for shareholder meetings against which all others are judged. The daylong, carnival-like atmosphere features comedy skits, disco balls, music, celebrities like Bill Gates and even dancing characters from the various companies in the portfolio, including the GEICO gecko. Live online coverage of the proceedings provides real-time updates for those individuals who are interested in the event but unable to attend. Note that attendees who wish to join the party and hear the Oracle of Omaha speak are required to hold Class A shares, which have recently traded above $290,000 each.

While not at the level of a Berkshire bash, Wal-Mart Stores Inc. (WMT) is no slouch in the shareholder meeting department. Under fire for a variety of labor practices, the retail giant has taken a page from Berkshire's playbook. To get a sense of the events, just ask yourself "What do mega-celebrities Will Smith, Taylor Swift, Ben Stiller, Miley Cyrus, Mariah Carey and Tom Cruise all have in common?" The answer is that they have all participated in Wal-Mart shareholder meetings, as the chain has turned its meetings into celebrity endorsements where the star power works hard to endorse the firm's practice in a major league effort to overshadow the dissent.

For investors, it is reasonable to say that shareholder meetings provide little in the way of revelations. The Security and Exchange Commission's enactment of Regulation FD on Aug. 15, 2000, effectively banned companies from selectively releasing material nonpublic information. To remain in compliance with this mandate, companies release their quarterly earnings information in well-telegraphed events. This information is where investors look to gain insight into a company's health. That said, if you get a chance to attend the festivities at Berkshire or Wal-Mart, you will probably have a good time, even if you don't get any special insights.