Partisan Politics and Annual Shareholder Meeting Formats

Annual shareholder meetings are an important institution in corporate governance, providing a forum for shareholders to present proposals and challenge management. Traditionally most shareholder meetings have taken place in person, except at a few tech firms such as Netflix, Inc.  The Covid-19 pandemic changed this practice, as public health regulations discouraged or banned large gatherings in mid-March 2020. Nearly all shareholder meetings around this time were suddenly held virtually.  As the pandemic ends, with other social activities such as school reverting to in-person, firms also face decisions of whether to keep shareholder meetings online or move back to the traditional in-person format. In a recent paper, we study firms’ choices of the meeting format for their annual shareholder meetings in the pre-Covid, mid-Covid, and post-Covid periods, focusing on the role of partisan politics in these decisions.

We study S&P 1500 companies’ annual shareholder meetings from January 2018 to May 2024. For most firms in the sample, there are two pre-Covid meetings, two mid-Covid meetings, and two post-Covid meetings. We use political variables for both CEO ideology and local ideology, based upon political donations by CEOs and presidential voting data for each firm’s headquarters county. We base these measures on long-term historical records to alleviate the endogeneity concern that current political events drive both a firm’s meeting choices and its executives’ political donations.

We document that 8.5% of pre-Covid meetings are virtually, while the fraction of virtual meetings shoots up to 81% during Covid and remains high at 70% for post-Covid meetings. These data indicate that annual shareholder meetings largely remain virtual in the post-pandemic U.S., a change that increasingly seems to be permanent.

We then study the choice of the meeting form in two ways. Since the decision process of the choice can be very different in the pre-Covid, mid-Covid, and post-Covid periods, we first run three separate cross-sectional regressions with an ordered Logit model, measuring the extent of firms adopting virtual meetings in each period. Second, we account for serial correlation by running Logit regressions with firm fixed effects using all meetings of sample firms.

With both methods, we find that the choice of meeting format is heavily affected by the political ideology of the firm’s CEO and the local political environment of its headquarters. Compared to firms led by Republican CEOs, those with Democratic CEOs are more likely to hold virtual meetings before, during, and after Covid. Meanwhile, more virtual meetings are held in Democratic political jurisdictions, controlling for CEO ideology, meeting and firm characteristics. Interestingly, characteristics capturing potential contentiousness of meetings, such as say-on-pay vote results, the number of shareholder proposals, or whether ISS disagrees with the management on an agenda item, do not play nearly as an important role as the ideology variables.

Relatedly, when we use the subsample of firms holding only in-person meetings in the pre-Covid period and study their decisions to switch to online meetings during Covid, we find that firms with Republican CEOs are less likely to change the meeting from in-person to virtual, despite the fact that the country was in the middle of a pandemic. Similarly, for the subsample of firms holding virtual meetings during Covid, those with Republican CEOs are much more likely to switch back to in-person meetings post-Covid.

Lastly, we consider another potential reason for holding virtual meetings: a convenient way for firm executives to manage the meeting platform to avoid shareholder scrutiny or confrontation. Reflecting our earlier research into the geographic location of shareholder meetings, we test this hypothesis by studying daily stock returns around earnings announcements after the current annual meeting and preceding the next meeting. We find no significant evidence that virtual meetings are followed by worse stock performance around subsequent earnings announcements. This suggests that managers do not use virtual meetings to hide private negative information, at least not so in our sample period ending in the spring of 2024.

We conclude that the COVID-19 pandemic catalyzed a significant shift from in-person to virtual shareholder meetings, a trend that has reversed only somewhat post-pandemic. Partisan politics plays a role in these decisions, with Republican-leaning companies favoring in-person formats and Democratic-leaning companies maintaining virtual meetings. This dynamic reflects broader political divides and their impact on corporate governance practices.