Corporate shareholder meetings are notorious for their awkward moments, with disgruntled investors griping about everything from the value of their stock to factory closings and lending policies.
Not infrequently, an executive or board member is urged to resign. But the stammering, the dismissals and the pregnant silences keep occurring year after year because shareholders are guaranteed the right to gather — at least once a year, in most cases — and give management some form of input.
At least, that’s how the system is designed to work.
Justin Danhof, general counsel for the National Center for Public Policy Research, a think-tank that uses its investments in public traded companies to advocate for conservative positions, discovered first-hand in late April that the system is susceptible to failure.
Showing up at the annual meeting of VF Corp., a holding company that controls popular consumer brands ranging from North Face jackets to Wrangler jeans and Nautica apparel, he was told that the center’s ownership of 20 shares through the Swiss brokerage UBS since February 2013, didn’t entitle him to attend the meeting.
Danhof, a graduate of the University of Miami School of Law who previously worked at the Miami-Dade prosecutor’s office and the U.S. Securities and Exchange Commission, produced his proxy notification with a unique 16-digit control number, to no avail.
The corporate attorneys who confronted him said, “This isn’t good enough,” he recalled afterward. “You’re not going to be able to attend the meeting.”
The attorneys summoned security guards to physically block Danhof from the meeting room at the O. Henry Hotel in Greensboro, N.C., and threatened to contact local police if he persisted in trying to gain access.
At that point, Danhof gave up and opted to file a complaint with the SEC. He had begun to suspect that the situation involved more than a simple miscommunication when the company offered to let him attend if he didn’t make any comments or attempt to address the meeting.
“That leads me to believe that they did some quick research, they figured out I was there, that I was an activist investor, that I ask tough questions and put CEOs on the spot, and they wanted to do whatever they could to make sure their CEO didn’t have to answer the question,” he said.
Danhof had, in fact, come with such a query. He wanted to ask why the company was allowing one of its brand executives to publicly condemn the Trump Administration’s reversal of national-monument designations by his predecessor, Barack Obama.
A VF spokeswoman didn’t return e-mail and phone messages regarding the incident.
While shareholders of record have an absolute right to attend a meeting, disputes over beneficial ownership — when an investor holds shares through a brokerage, for instance — are not uncommon, said Charles Elson, director of the corporate governance center at the University of Delaware.
“That said, I don’t think it’s a very good tack,” he noted, comparing the move to a congress member turning voters away from the polls. “Now, what you’ve done is shown hostility to your owners and that’s not a good thing.”
While executives have broad latitude in how to run such meetings, including setting rules for taking questions and putting time limits on them, the session itself “is the one time of year where you have to meet your maker,” Elson said.
“Simply answering a question, a legitimate question, is the legitimate obligation of management and the directors,” he said. “You have a right to attend that meeting. It comes with share ownership. You don’t have the right to be disruptive, but you certainly have the right to attend.”
