General Meetings 2020 – listening to the voice of the shareholder
The important role of the Annual General Meeting
We are now into the Annual General Meeting (‘AGM’) season and we are seeing a number of different approaches to the holding of AGMs.
The AGM is a key opportunity for shareholders annually to challenge the Board on its activities and strategy. One of the main principles in the UK Corporate Governance Code is that ‘in order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties’.
Hold or postpone?
Depending on the financial year end, some companies have the luxury of waiting until later in the year to evaluate their strategy for holding their AGM. However, for most Irish companies, one of the first considerations is whether to hold or postpone the meeting. For those taking the postponement option, on the basis that the AGM notice has not yet been sent to shareholders, there is a requirement to hold the AGM within 9 months of the year end and also within 15 months of the last AGM so there is a deadline looming. Where the notice has been sent, we know of at least one company who intend to immediately adjourn the meeting and reconvene later in the summer.
For those companies who choose to hold their meeting, this has created challenges for companies that typically have a large attendance of shareholders at their Annual General Meetings. In the light of the Government restrictions on gatherings and travel in relation to COVID-19, AGMs are being held much differently with shareholders being asked not to physically attend the meeting. In this regard we have seen additional notices for shareholders being sent in addition to the original notice setting out how the meeting will now operate in more constrained circumstances.
So how are companies responding in how they are holding their AGMs in 2020?
Of those companies that are holding AGMs we have seen a number of variations. We see AGM venues being changed from the original venue such as a hotel to the registered office of the company. Attendance reflects a minimum number of shareholders needed to meet the quorum. Those in attendance (all via telephone or video link) are typically the Chair, the Company Secretary and some members of the board or senior management. Shareholders have been asked not to attend in person.
What type of AGMs have we seen so far:
In a minority of cases we have seen some companies holding “closed AGMs”. Shareholders must vote by proxy and can submit a question in advance of the meeting. These meetings are not accessible to shareholders via webcast therefore shareholders have no voice during the AGM. When voting on the resolutions, the Chair will call a poll so that all shareholder votes submitted via proxy are included. This avoids resolutions being carried by a show of hands from those shareholders who are in attendance.
However In the majority of cases that we looked at, we have seen a more inclusive variation of the closed AGM where these meetings are accessible to shareholders via webcast, however shareholders cannot vote or ask questions during the AGM. Again when voting on the resolutions, the Chair will call a poll so that all shareholder votes submitted via proxy are included.
A final variation that we have observed is where shareholders are given the option to interact with the board and ask questions during the live AGM. This is probably the closest that we can get to a ’real AGM’ within the constraints of the Covid-19 restrictions and adherence to the Companies Act.
As the AGM is one of the few opportunities shareholders have to question the board, engage directly with management and hear the views of other shareholders, there has been some disquiet regarding “closed AGMs” from a company law and governance perspective. However, if an AGM is not held, final dividends cannot be declared, directors cannot be re-elected and share allotment authorities cannot be approved.
Interim dividends are an option for companies that are not in a position to hold an AGM to have a final dividend approved. The recent guidance note published on 29 April by the Institute on withdrawal or amendment of a dividend resolution at an Annual General Meeting is included here.
If a company decides to hold a “closed AGM”, it is important that the rationale for this decision is clearly explained and that shareholders are permitted to view the AGM proceedings and the technology should be user friendly for all.
Companies that have the ability to dispense with their AGM are electing to do this in greater numbers. Where a company dispenses with its requirement to hold an AGM, it is important that the financial statements are sent to the shareholder by the requisite date.
The High Court decision regarding the Grafton 2020 AGM
In the recent Grafton AGM case, the judge, in refusing to grant the injunction, noted that the shareholder who sought the injunction against the company for proceeding with the AGM to the exclusion of physical shareholders had not appointed a proxy and nor had he identified any resolution with which he had any difficulty or any issue with the board of directors.
The judge also noted that as a majority of shareholders have already voted on the resolutions via proxy and that it must be taken that they were aware of the shareholder’s complaint about the meeting procedure, there was no evidence any other shareholders supported the meeting being stopped. On the basis of proxies received, the vast majority of shareholders were in favour of the proposed resolutions, which were not controversial but were important for management of the company.
In the midst of all the above, boards need to be mindful of their duty to engage with shareholders. We welcome where shareholders have the opportunity to put questions before the board and where, they are being actively encouraged beforehand to submit their votes by proxy. This is particularly relevant where there are contentious resolutions on the Agenda of the meeting for consideration. Keeping shareholders up to date through the website is also advisable.
There is much advice available on the subject online. We would draw members attention the recently published advice of our Institute, here. While it is designed primarily to work alongside the UK Companies Act 2006 a significant element of the guidance is relevant in an Irish context.
In all cases, it is advisable to check the relevant provisions of the constitution of the company before any decisions are made on holding or postponing and when holding, how the AGM will operate.
John Burns FCG, is Business Development Manager for the Chartered Governance Institute in Ireland.