AGMs and impact of Covid-19

By Cliff Weight, ShareSoc Director

This is a complex area. It would be good to hear your views and ideas. Please add them via the comments box below this blog.

Online Q&A forums and live streaming of AGMs are good ideas. However, individual investors are an important constituency in this, but not properly considered in the new guidance on AGMs published on 17/3/20.

Shareholders will want to question directors about the impact of coronavirus and its implications on the company liquidity and solvency and will want reassurance about these and the ongoing business model. Never has the importance of the AGM been so high. However, questions and answers can be in a hybrid physical meeting and broadcast over the web.

There is no doubt that elderly people are more at risk and many of those attending AGMs fall in the high risk category, so they and many others may choose not to attend physical meetings.

The priority for companies should be its policy for staff and customers, with respect to large meetings. Once that is clear, the decision about the AGM will follow on, and should reflect the Government guidance.

Facilitating those miles away to attend AGMs electronically will be a hugely beneficial by-product of the coronavirus crisis. Having a physical AGM and an ability to attend remotely and ask questions and not be excluded after a time limit would be a great improvement.

Well run companies who have regular shareholder engagement meetings with shareholders (as do HSBC, BHP, GSK, Vodafone, etc) will receive a sympathetic response to whatever decisions they make. Companies who have not established trust with their shareholders will struggle with these decisions and the idea of closed meetings will be viewed with great suspicion.

These are difficult times. However, companies should continue to engage with shareholders. It is the most difficult times that test companies on their decision making. Removing a key part of shareholder democracy in these times would set a very dangerous precedent.

Companies should ensure that their AGMs are broadcast on the web live so that all shareholders can see the AGM. It is preferable that remote shareholders can be allowed to ask questions and enabled to do so, via modern technology.

I have discussed this with Mark Bentley and he made this next point, with which I agree:

Separating the formal business from the rest of the AGM is really not satisfactory.

It may be necessary for shareholders to ask questions (and/or hear a presentation, where provided) before taking a final decision on voting. If only pre-submitted proxy votes are accepted, then the AGM becomes largely a rubber stamping exercise. The best AGMs involve shareholders questioning the directors, and expressing their views, about the resolutions they’re being asked to vote on. This is especially important for resolutions on remuneration and such matters as share buybacks. Not only does it mean that shareholders vote in an informed manner, but it can also offer valuable feedback to the board about shareholder views.

ShareSoc recommends that presentations and questions always take place before the formal business, for that reason. See the section on “Asking questions and speaking” here: https://www.sharesoc.org/investor-academy/advanced-topics/general-meetings/

Companies may choose to adopt force majeure approaches and some flexibility may be given by the shareholders who own the companies. However, badly run companies with management that are remote from shareholders and fail to listen and engage with their shareholders, should not be allowed to ignore the legitimate rights of shareholders.

Many of us working remotely will find this an ideal time in which to do detailed thinking and analysis. There is no reason for the world to stop, just because travel and physical meetings are difficult.

NEW GUIDANCE PUBLISHED

New guidance, see https://www.icsa.org.uk/knowledge/resources/agms-and-impact-of-covid-19 , has been produced jointly by Slaughter and May and The Chartered Governance Institute, with the support of the Financial Reporting Council, GC100 (general counsels of FTSE100 firms), the Investment Association and the Quoted Companies Alliance. The Department for Business, Energy and Industrial Strategy has also reviewed the guidance.

I have huge sympathy for anyone trying to produce helpful documents in these very difficult circumstances. This new guidance contains a lot of common sense. I don’t agree with all of it. In times of stress then often bad decisions can be made reflecting fundamental flaws in the thinking patterns/logic constructs of those making them. In this case, it would appear that too many decision makers are not really committed to AGMs or the rights of individual shareholders (who hold 12% of FTSE 100 companies 19% of mid cap and small caps and 29% of AIM companies).

My analysis is that there are some good news and good ideas coming out of this new guidance. Here is my view of the good, the bad and the ugly.

The Good: 

• Establish an online shareholder Q&A for the AGM. Shareholders can post questions related to the business of the AGM. To the extent practicable, this should be kept up to date with answers up to the deadline for proxy voting. Questions can also be answered at the AGM, in particular if the AGM is being live streamed.

This is a really good idea. There will be a need to make sure that loonies don’t dominate the questions. Previously access to the company was limited to those allowed to have cosy chats behind closed doors. This new idea is transparent and allows all shareholders equal access.

• Live stream the AGM. Where technologically possible, a live stream of the event and/ or a phone link could be set up. These options will not constitute formal attendance at the meeting.

Another really good idea. However, things have moved on since the days of quill pens and ink pots, but the law has not! The law needs to change to enable people to attend AGMs remotely and this to be recognised as formal attendance.

 The bad! 

• Encourage proxy voting. Include specific provisions in the notice of meeting encouraging shareholders to vote by proxy. Facilitate on-line voting to pre-empt any disruption to postal services. Supplement this with appropriate announcements and website updates.

This is a really bad idea, because voting decisions should be made after the questions and answers at the AGM and this suggestion removes the need for institutional shareholders to attend AGMs and hold directors to account in public.

• Consider announcing a shareholder event to be held later in the year. Although this will not be the AGM, companies may wish to offer shareholders, particularly retail investors, the opportunity to engage with directors later in the year.

Holding shareholders events is a good idea. They can be held before the AGM. (HSBC have done this for years.) The vote at the AGM should be based on the information in the annual report, subsequent disclosures and the Q&A at the AGM and others means such as shareholder events. Events after the AGM are valuable, but big companies should hold one just before the AGM as well. Such events can be virtual events, i.e. held via web conferencing facilities.

The ugly?

Nothing to report in this category!