The COVID-19 pandemic has challenged UK quoted companies to change their approach to holding physical annual general meetings (AGMs). At a time when social distancing rules mean that the traditional approach to an AGM is no longer permitted, many companies have been forced to embrace holding AGMs on electronic platforms. Such meetings have been either entirely virtual or a mixture of virtual and physical, so called ‘hybrid’ meetings.
In recent weeks, two reports have been published looking at what lessons can be learned from the 2020 AGM season and providing insight and guidance on what AGMs and other shareholder meetings might look like in future.
At the start of October, the Financial Reporting Council (FRC) issued a review entitled ‘AGMs – An Opportunity For Change’. The review considered the different ways companies held AGMs during the first half of 2020 and analysed whether the approaches taken by the companies best served the interests of shareholders. The review found that many companies held meetings with only one or two members present (usually the company secretary and the chair), while others embraced technology to ensure that shareholders were able to participate effectively. It notes that the differing approaches taken by companies drew both support and criticism from investors and other stakeholders.
As part of the FRC’s review, a sample of 202 FTSE 350 AGMs were analysed with the following results:
- 80.7% of FTSE 350 companies held closed meetings, requiring voting in advance via proxy;
- Of the companies that held closed meetings, 81.6% made some arrangements to allow for shareholder Q&As with the board;
- Of the companies that held open meetings, 60% were facilitated through webinar or audiocast with live voting capabilities; and
- 30 companies appear to have not made any arrangements for shareholders to ask questions to the board prior to or during the AGM.
Since the AGM is an essential governance event allowing shareholders to hold the board to account through Q&A and discussion, it is crucial that shareholders are given the opportunity to take part. The review found that the best organised and executed virtual and hybrid meetings enabled increased participation from shareholders. Companies that held closed meetings with retail shareholders unable to participate or vote on the day of the AGM disenfranchised those shareholders.
According to the International Corporate Governance Network (ICGN), the appetite for virtual or hybrid shareholder meetings had been growing among some issuers and institutional investors even prior to COVID-19 pandemic. This was mainly driven by the fact that institutional investors vote at hundreds, and often thousands, of shareholder meetings every year, and may have to vote at multiple meetings every day during the peak shareholder meeting season of April to June. As a result, AGMs are generally attended by retail shareholders, with institutional investors typically voting electronically/by proxy and turning up at AGMs only when they have a large shareholding, if there is a particularly contentious issue on the agenda, or if they intend to use the meeting to deliver a message to the company’s board and other shareholders.
Virtual and hybrid AGMs, enabled by new technologies, offer the potential for making shareholder meetings more accessible for both retail and institutional investors alike by removing the geographical barriers, travel requirements and reducing other attendance costs. According to ICGN, when it comes to creating positive shareholder experience in the virtual format, the key to success is to replicate, as best as possible, an in-person shareholder meeting.
The FRC review concludes by stating that it wishes to see a significant increase in the use of technology “that facilitates robust virtual interaction during an AGM providing greater access for all shareholders and ensuring there is an opportunity to hold the board to account”. If you add to this the ICGN’s view that companies have a significant opportunity for much broader shareholder participation in the shareholder meeting process through the virtual, or hybrid, option it could be that 2021 will be the year for a seismic shift away from physical meetings.
WM Comment
The FRC urges companies to consider, sooner rather than later, what changes might need to be made for next year’s AGM. If companies wish to use more technology, they should be talking to providers now and not leave it until notices are being prepared. Companies should also consider whether articles of association need updating to allow for hybrid meetings.
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