Many
companies have found solutions for holding formal company meetings during the
period of lockdown, whether this is virtual meetings, hybrid meetings
incorporating some virtual communications, written resolutions or, for those
hoping not to have to implement change, postponing meetings for as long as
possible. Alongside this, legislation throughout the world has been adjusted or
relaxed to accommodate Covid-19 related changes. What has been evident is that
the use of virtual meetings based around electronic communications has been
adopted extensively.
Virtual
meetings have long been held for internal or purely operational meetings of
directors and executives as they enable efficient and effective meetings to be
held without participants, who are often geographically dispersed, having to
travel to attend a physical meeting. Technology has developed considerably over
the past decade to accommodate effective communication and this type of formal
connectivity.
However,
the drive to utilise technology for larger gatherings, specifically AGMs where
a broad range of shareholders and stakeholders are brought together *, has long
been discussed, but only infrequently applied. Barriers to the implementation
of virtual meetings have been thrown up, including legal restrictions, a
perceived lack of shareholder acceptance, practical issues in terms of voting
and the potential resultant inability to challenge boards and executives on
their actions.
The
current global situation, with many countries implementing social distancing
and/or restrictions on meetings of more than a small number of people, have
meant that companies have had to adapt their standard annual meeting approach.
This is particularly evident in those companies who have a formal deadline to
hold a meeting within a certain time period of the end of their financial year
end. In the UK, a public company with a financial year end of 31st December
has a requirement to have their annual accounts approved by their shareholders
at an AGM within 6 months of the year end, with the same requirement for
private companies being 9 months. These deadlines have meant that
companies have had to adapt their plans during this, the UK public listed company
AGM season, to reflect a myriad of imposed requirements.
Attending
a recent webinar from The Chartered Governance Institute (a global network with
9 local institutes in countries throughout the world) on this topic, where
practitioners shared their experience of rearranging large-scale AGMs, it was
evident that companies are finding effective solutions to ensuring that they
can continue to fulfill their obligations with governance experts adapting to
the current requirements, whether this is to incorporate social distancing
measures or to implement virtual meetings. Some core lessons were shared on
achieving quorum, generating questions before the meeting, sharing the status
and outlook for the business through statements and videos, as well as demonstrating
continued commitment to having physical meetings in the future. (A recording of
this insightful webinar is due to be shared on their website at: https://www.cgiglobal.org/)
What
should be remembered is that the AGM is a meeting with two primary purposes.
One is to get the operational business of the company approved through the
adoption of resolutions presented to shareholders. The other is to enable
shareholders to hold the board and executive to account for their actions. The
former is relatively straight-forward to accommodate in a virtual meeting,
unless there are any contentious resolutions. The latter, which is arguably the
most important purpose, is more difficult to incorporate. Submission of
questions by shareholders before the meeting can initiate some discussion and
feedback but is unlikely to create a robust discussion or enable effective
challenge.
Best
practice seems to have been the commitment to hold a shareholder meeting later
in the year when it can be held physically with the primary purpose of enabling
shareholders to question and challenge boards and executives on their actions,
strategy and future plans. Given the current disruption that has impacted on companies,
either positively or negatively financially, but in all cases significantly
with regard to operations and activity, being able to share the view from the
board of the future of the business with shareholders is surely an imperative
that any effective board should seek to have.
It has
been noted that the majority of AGMs are attended by retail investors seeking a
connectivity with the companies they have invested in. Whilst there is
representation by institutional investors, these large-scale investors also
have the ability to speak directly with the company outside of the meeting, at
the request of either party. This direct contact means that their views
are already known to companies and can be accommodated in actions,
communications and expectations around voting. Virtual meetings for these
shareholders can be seen as formalities, rather than a key touchpoint during
the financial year.
The real
benefit of the AGM then is to hear the view of the breadth of retail
shareholders who may hold relatively few shares by percentage but, by their
actions as consumers, may have a broader impact on the success of the company.
The views of the wider stakeholder community can also be added, especially for
companies that have a direct impact on communities, whether locally or
globally. It is particularly in these companies that the ESG (Environmental,
Social, Governance) agenda is so important and where recent global activism
surrounding climate change has been so vocal. Whilst it may be tempting for
boards to avoid or downplay the opportunity for these views to be publicly
heard, the alternative may drive these stakeholders to seek other avenues to
challenge companies and their executives. In fact, having an AGM enables
this section to have the opportunity to vocalise their opinions and any board
should welcome and be able to respond to these.
One view
that has favoured virtual meetings is that, where discussions may be
contentious or there may be a visible group with a focused agenda, the views of
the silent minority, or even the silent majority, may be lost in the noise.
Having a virtual meeting with questions asked ahead of the meeting enables all
questions to be received, considered and responded to, no matter their source,
topic or the volume of the questioner.
What is
the Likely Future for Virtual AGMs?
The
consensus view is that the current forced requirement to review how meetings
can be held has enabled discussions that have been held over many years to be
crystalised. Hybrid meetings have become the norm in the current AGM season
with those still to come seeking to implement them rather than await the
potential reversion back to normality.
Actions
have been taken to amend Articles where needed to allow for virtual meetings.
The ability to have a quorum through minimum attendance and proxies has been
ascertained and adopted. Pro-active requests for questions prior to the meeting
have been implemented, and shareholders have responded positively. Resolutions
have been shared prior to the meeting as usual, but with greater emphasis on
lodging votes prior to the meeting.
All of
these actions can easily be continued in the future to the benefit of the
business, either in their entirety or in part.
Where
there is clearly a residual requirement for a physical meeting is for the
shareholder connectivity and the ability for the board and stakeholders to meet
and exchange views. In the future, the opportunity for this for the wider
shareholder community to meet needs to be maintained. If the only discussion
with shareholders is via the privileged access that major institutional
shareholders receive, then the board and executives are not getting the benefit
of a broader perspective. This is particularly important in those companies
with a breadth of retail investors and/or who’s customer base is the individual
consumer.
If the
follow up physical meetings are a success post lock-down, they may become the
norm for shareholder interaction and could relegate the AGM to being a
formality of approvals of resolutions. In this scenario it could easily be seen
that AGMs are held virtually whilst shareholder meetings, in an alternative
format, are held separately. The consideration then should be when the
shareholder meetings are held and whether one per year is sufficient. For
example, should contentious resolutions be shared for discussion with
shareholders at a meeting so their views can be accommodated? Given the board
is acting on behalf of shareholders, you would expect the views of
shareholders, especially those that are in contrast to the board, should be at
least discussed, even if not accommodated in their entirety. Should the
forward-looking strategy of the business become a stand-alone meeting with
shareholders to encourage discussion and wider opinions and views?
With the
increase focus on ESG by many companies, non-AGM meetings may be a preferred
solution as the stakeholder voice gains more traction and companies recognise
more directly their impact on society and the environment around them.
Hopefully this will also be a way for those companies who, many as a result of
Covid-19, have consciously recognised their wider impact on society as being a
core element to their business model and ultimate success, to maintain this
connection. By continuing to seek the views of stakeholders as well as the
broad shareholder group, they can continue their ESG focus beyond the crisis to
the benefit of the company, as well as the society in which they act.
So are
virtual AGMs here to stay? I hope so for the practicalities but only with
alternative methods being introduced and maintained to facilitate shareholder
and stakeholder interaction outside of the AGM and beyond lead institutional
investors.
* A video on
holding hybrid AGMs from the Hong Kong Institute of Chartered Secretaries in
August 2018 is an interesting 3 minute watch especially with the benefit of
hindsight.
https://www.youtube.com/watch?v=bqzty6DBX-8&feature=youtube.be
The
Chartered Governance Institute has published new guidance on what constitutes
good practice in the conduct of virtual board and committee meetings which can
be found on their website at:
https://www.icsa.org.uk/knowledge/resources/good-practice-for-virtual-board-and-committee-meetings
