Attending a recent webinar from The Chartered Governance Institute on the topic of holding virtual AGMs, 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 fulfil their obligations with governance experts adapting to the current requirements. Some core lessons were shared on achieving a 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/ )
However, 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 crucial purpose, is more challenging 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.
One of the real benefits of the AGM is to hear the view of the breadth of shareholders, including individuals, 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.
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.
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 or where the customer base is the individual consumer.
If the follow up physical meetings are a success post-lockdown, they may become the norm for shareholder interaction. They 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 while shareholder meetings, in an alternative format, are held separately. In effect, implementing a dual structure of an Annual General Meeting (AGM) and an Annual Shareholder Meeting (ASM).
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 increasing focus on ESG by many companies, ASM 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.
This blog is an extract from a longer article written by Sue Lawrence, Founder, Independent Directors & Trustees Limited that can be found on the company website at: www.independentdirectorsandtrustees.co.uk