AGMs: Split the voting from the meeting

Putting distance between the two core aspects of the AGM could help stakeholders have their voice heard

As I was lying on the sun lounger making my way through the new Dutch Stewardship Code for investors recently – it is essential holiday reading for us governance geeks – I came across a simple but interesting proposition. In amongst the usual stuff about engagement and considered voting, the Dutch make this recommendation:

‘Asset owners and asset managers [should] communicate with relevant stakeholders of Dutch listed investee companies.’

This strikes me as being eminently sensible and desirable. A lot of the debate and direction of policy over the last few years has been predicated on the belief that companies have given too much weight to the interests of shareholders at the expense of other stakeholders, and that those shareholders are happily oblivious to the impact on others as long as they are getting a return.

These assertions are greatly overstated and oversimplified. There is no shortage of examples of major investors campaigning on environment and social issues. As one would expect when the clients and beneficiaries in whose interests they invest are at the same time also customers and communities affected by the actions of the companies in which they are investing.

However, there is one very important respect in which shareholders are in a privileged position compared with other stakeholders. Their voting rights give them an ability to exert direct influence over the board in a way that most others cannot. Given this relative power, I think it is an excellent suggestion that investors should be encouraged to gain an understanding of the views of other stakeholders before casting their vote. It may not change their position, but at least they would understand the potential implications of their decision.

The challenge is finding a way of doing so effectively. On this point, the code from The Hague is a little vague, but understandably so. There are a lot of practical difficulties, the main one being resources. Most investors don’t have the capacity to engage directly with all of the companies they invest in, let alone those companies’ other stakeholders.

In addition, as we pointed out in the ICSA and Investor Association guidance on The Stakeholder Voice in Board Decision-Making, there are some groups of stakeholders that even companies find hard to identify and engage with other than through proxies like NGOs.

Further intensive lounging gave me the opportunity to mull this over and I have come up with a bright idea. It is one that, if it works, may also help to address another governance challenge that gets debated regularly – how to ‘fix’ the annual general meeting.

There is a fairly widespread view that the AGM is no longer entirely fit for purpose, for two reasons. The first is that, with votes already having been cast, the meeting itself is no longer a decision-taking forum. Board can receive, or be refused, the mandates they seek without anyone actually having to meet.

The second is that low attendance means that it is not, at least from the company’s perspective, a cost effective way of communicating with shareholders, although technology may enable higher participation rates. Investor objections to ‘virtual only’ AGMs suggest they still see some value in the meeting as a means of holding the board to account (although in most cases not to the point of actually turning up and doing so).

My bright idea is this: separate the voting and the meeting and reinvent the latter as an annual open meeting for all interested parties, including but not limited to shareholders.

The meeting would come first, after the publication of the annual report and accounts but before any resolutions are sent to shareholders. Building in a bit of time between the two events would give the company time to reflect on what it heard at the meeting and, if appropriate, adjust one or more of the resolutions accordingly.

It would also give shareholders the opportunity to hear what stakeholders think of the company at first hand; or, probably more realistically, for their advisors to summarise the sentiment of the meeting at the same time as advising them on the resolutions. Either way, it broadens the perspective on the relevant issues before they reach the point of taking a decision – as it does for the board as well.

No doubt there are many practical considerations that would need to be overcome, and possibly some legal impediments as well. But if the idea has any merit, I am sure it is not beyond the collective expertise and experience of the ICSA membership to find a way of making it work.

Chris Hodge is policy advisor at ICSA: The Governance Institute

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