Scrutiny suffers as AGMs and directors move behind closed doors

Shareholders have been effectively locked out of their annual opportunity to hold directors accountable for the previous year’s financial performance, analysis by Philip Smith

Instead of being able to quiz directors face-to-face, shareholders now face a number of different ways to communicate with their directors as companies adapt to a new way of engaging with their investors.

The changes have been forced on the corporate reporting world as a direct result of social distancing measures that prevent such gathering from taking place. However, the meetings still need to happen, otherwise the directors risk falling foul of company law.

As a result, company boards have adopted a number of different approaches towards how they will run their AGMs. Technology and pragmatism have combined to ensure that the resolutions that allow the company to function are voted on. That is the bare minimum.

From here, boards then need to address how shareholders are able to communicate with the directors. And this is where practice diverges.

Network International, the listed e-payments group, has been forced to move its meeting from London to Dubai, where its head office is located, due to the UK’s ‘Stay At Home’ restrictions that prohibit public gatherings of more than two people.

But nevertheless, shareholders can ‘virtually’ attend and participate in the meeting electronically either by downloading a dedicated Lumi AGM app or by accessing the AGM’s website.

Although questions to the board would need to have been submitted beforehand, they would be answered during the meeting, so shareholders would be able to hear in real time the answers.

RSA Insurance will also be using the Lumin app for its AGM. Alongside this, it will be offering a dial-in service, with questions to the board taken after the completion of its formal business. Investment manager Rathbones will be running a live webcast of its AGM, while the answers to questions received before the AGM will be posted on its website shortly after the meeting.

Others are taking a different approach. Online supermarket delivery service Ocado has simply asked for votes to be delivered by proxy via the chair of the board, and its AGM notice makes no mention of how questions to the board will be dealt with.

Rotork, the industrial parts manufacturer, will be offering a dial-in facility, but questions will need to be emailed to the company secretary seven days ahead of the meeting, with answers published at a later date.

Royal Dutch Shell, whose AGMs have often been picketed by environmental protestors in the past, will not be providing any webcast coverage of the meeting, though a transcript will be posted on its website after the meeting.

However, questions can be submitted via the company’s website portal, and the oil producer promised it would arrange an additional shareholder engagement event later in the year.

Most companies have asked for questions to be submitted by email before the meeting, though there is a certain amount of different practices in terms of how and when they are answered, whether they be just direct to the questioner, published ahead of the meeting, reporting during the meeting, or posted at a later date on company websites.

Such variations in practice will be dependent on individual company needs, but it also exposes them to the charge of avoiding scrutiny.

The Financial Reporting Council recently release guidance on how listed companies should run their AGMs.

The options laid out by the guidance, which reflects UK law and regulation, are as follows:

•Adapt the basis on which you hold the AGM;

•Delay convening the AGM, if notice has not yet been issued;

•Postpone the AGM, if permitted under the articles of association (Articles);

•Adjourn the AGM; and

•Conduct a hybrid AGM, if permitted under the Articles.

Given that the situation continues to evolve, companies may ultimately have to use more than one of these options.

In addition, the FRC and the Department of Business, Energy and Industrial Strategy have released some Q&As highlighting measures to be introduced to help companies holding their annual general meeting during the Covid-19 related restrictions.

According to law firm Gateley, the Q&As confirm that new measures will be introduced by legislation as a matter of urgency but until then companies must work within the existing legal framework. One of the key problems is that virtual-only meetings are uncommon and largely untested in the UK.

While the Companies Act 2006 provides that nothing in that Act precludes meetings being held by electronic means, some commentators take the view that the requirement for a notice of a shareholders’ meeting to state the ‘place’ of the meeting means there must actually be a physical meeting albeit that shareholders could then attend that physical meeting by electronic means – a so called ‘hybrid’ meeting.

The Q&As state that the new legislation will overcome this by providing for ‘closed’ meetings with a minimum number of people in attendance via telephone or other means of electronic communication.

‘Such a meeting should be able to comply with any quorum requirement which is typically fairly small anyway – usually between two and five people,’ Gateley says.

However, the firm says that there is a concern that if companies move to holding ‘closed meetings’ this will deny the wider shareholder base both a vote and a voice.

The Q&As suggest that shareholders should be encouraged to vote by proxy to ensure that their votes on the business of any closed meeting are taken into account. Companies are also encouraged to engage shareholders before, during and after the meeting by responding to questions raised by electronic or other means. Those questions and any responses could be included in the AGM minutes.

The Q&As also recommend that companies give shareholders a voice by holding ‘shareholder days’ later in the year at which members could be offered access to the board in a similar way as at a typical AGM.

Peter Swabey, policy and research director at The Chartered Governance Institute said: ‘It is important that companies balance the need for pragmatism in the light of the Covid-19 outbreak against their legal and regulatory obligations and good practice.

‘In my view, as a general rule, they cannot go very far wrong if they try to maximise the opportunity for shareholders to take part in the meeting. Encouraging proxy voting, the establishment of an online shareholder Q&A for the AGM and live streaming the AGM are all sensible measures to consider and companies may also choose to offer an opportunity for retail shareholders to engage with the board later in the year.

‘Companies should also remember that it may become necessary to postpone or adjourn the meeting if the situation changes. A dedicated area on the company website should be established to provide shareholders with the most up-to-date information.’

As insurance giant Aviva says in its notice to shareholders: ‘We recognise that the AGM is valued as an opportunity for shareholders to engage with and hear from the board and we will do what we can within the confines of the government restrictions to support this principle.’

By Philip Smith

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