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How to mitigate disruptions at your annual meeting

by contributors Cal Smith and Robert J. Leclerc, King & Spalding | Published May 1, 2012 at 1:12 PM

With this year's annual-meeting season upon us, public companies should refresh their procedures for mitigating potential disruptions. While most annual meetings are held without incident, companies may encounter more shareholder unrest this year as advocates jockey for media attention and attempt to build off of the anti-corporate fervor that groups such as Occupy Wall Street have generated.

Unless handled with care, annual meeting disruptions can result in lasting damage to a company's brand -- particularly today, when an incident can be quickly posted to social media outlets and go viral in short order. Accordingly, one of the goals of the annual-meeting planning process should be to anticipate and defuse the risks that disruptions pose not only to the completion of the annual meeting, but also to your company's reputation and goodwill.

Engage early. It is too late to begin dialogue with activist shareholders on the day of the meeting. Companies should engage early with activist shareholders and understand their concerns -- if for no other reason than to be able to identify them and respond appropriately if they attend the meeting.

The official meeting should cover only the bare necessities. Most annual meetings include detailed investor relations and public relations presentations by a member of the company's senior management team. Since these presentations increase the length of the potential window for disruption, the official business of the meeting should be placed first on the agenda. To the extent the CEO or another member of the company's management team does make a presentation or engage in a Q&A session, it should come after the announcement of the preliminary voting results and the adjournment of the official meeting. With this ordering, you will have a greater chance of completing the necessary business of the meeting before any disruption occurs and any participation by dissident shareholders will not be reflected in the official minutes of the meeting.

Anticipate and pre-empt difficult questions. If you believe a sensitive topic (such as executive compensation or director diversity) may be the subject of a question at the meeting, it is often very helpful to pre-empt the question by having a management-friendly shareholder ask the question in a nonaggressive, impartial manner. This practice allows the chairman to respond thoughtfully and also allows the chairman to refer to his or her previous answer, thereby neutralizing a hostile questioner determined to ask the question again.

Distribute clear and concise rules of conduct. Clear and concise ground rules for the meeting should be adopted and distributed to every attendee. Setting these rules is typically the purview of the chairman and, contrary to conventional wisdom, there is no requirement that Robert's Rules of Order or another set of strict parliamentary procedures be prescribed (unless the bylaws otherwise provide). The rules of conduct should be flexible and summarized by the chairman at the outset of the meeting. With respect to the length of time that each shareholder should have to ask a question, most companies tend to limit questions to two or three minutes. While some companies go so far as using a timer and ringing a bell when the time has elapsed, it is far better to permit a shareholder to run over his or her allotted time than to cut off the questioner midsentence or to immediately turn off the microphone. In the end, your goal is to avoid a disruptive scene and not instigate an unwanted shouting match -- or worse, an ejection where security must escort the shareholder from the meeting.

Control access by establishing a separate check-in area. Many companies establish an admissions and registration desk along with a reception area separate and apart from the actual meeting site. This practice allows companies to identify and respond to potentially difficult shareholders before the meeting begins, and also may help the company limit access to the meeting to those legally entitled to attend. Moreover, many shareholders who arrive at the meeting with a confrontational disposition may actually prefer to "vent" outside of the meeting. Having management representatives available to engage in informal conversations with shareholders may help assuage potential problems before the actual meeting begins.

Review advance notice bylaws. Advance notice provisions in a company's bylaws require a shareholder to give advance notice of matters the shareholder intends to propose at the meeting. If a shareholder makes a surprise motion at a meeting, then the chairman will have the authority to rule it out of order in accordance with the advance notice provision.

Temper media participation. Media attendance at a company's annual meeting is often unavoidable. However, if you believe there is a likelihood of a significant disruption at your meeting, you may want to consider limiting the meeting to print media only. Some companies provide a video feed to media outlets (particularly those companies that webcast their meetings to employees), but the video is strictly controlled by the company so that if there is a disruption, the camera avoids it. Further, rules of conduct for the meeting may prohibit photography, as well as video or audio recording. Press conferences and other media events that often now accompany shareholder meetings can be held at a different location away from any protesters -- typically after the meeting is held, to help ensure the company gets the last word.

Sometimes even the best-laid plans and tactics are not enough to thwart an unruly shareholder determined to cause a scene and attract as much publicity for his or her cause as possible. When there is no other choice but to deal with the dissident, companies should consider the following actions:

Request that the shareholder stop the disruptive behavior. As an initial matter, the chairman should instruct the shareholder to stop the disruptive behavior and remind the shareholder of the order of the meeting set forth in the agenda. If the company has provided rules of conduct to meeting attendees, the chairman should refer the shareholder to those rules and note that the conduct in question is in violation of such rules.

Threaten removal from the meeting. If the requests to stop the disruptive behavior are unsuccessful, the chairman should inform the shareholder that if the disruptions continue, he or she will be asked to leave the meeting. Turning off the shareholder's microphone is often an effective method of gaining the upper hand.

Remove the shareholder from the meeting. This is obviously the path of last resort. However, if the shareholder continues to be disruptive or abusive, the chairman should ask the person to leave the meeting. If he or she refuses to leave, the chairman will have to decide whether ejection from the meeting is appropriate. To that end, prior to the meeting, company personnel should review and understand issues relevant to forcibly removing a participant, such as local laws regarding trespass, disorderly conduct and even false imprisonment and battery.

When faced with a disruption at your annual meeting, the goal should be to avoid inflaming what is already a tense situation. Once a disgruntled shareholder or special-interest group has made it into the meeting, it is often better to allow them to have their 15 minutes of fame. Although there may occasionally be no other choice but to forcibly remove an unruly attendee, allowing the activist a reasonable opportunity to promote his or her social or political agenda is typically a far more prudent approach than resorting to tactics that may be perceived in hindsight as heavy-handed or worse.

Cal Smith is a partner and Robert J. Leclerc is an associate in the corporate group of King & Spalding LLP.

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Tags: annual meeting | Occupy Wall Street | OWS | shareholder activisim | shareholder meeting

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