Pandemic Accelerates AGM Evolution

Executives have been concerned for some time that AGMs no longer meet their needs or those of their shareholders. Declining attendance and increasingly esoteric questions from gadfly investors during meetings have exacerbated these worries.

“AGMs have previously been a forum for retail shareholders,” says Victoria Whyte, company secretary at pharmaceutical multinational GlaxoSmithKline. “They also increasingly provide a unique opportunity for activists to raise matters of particular concern to them. These can range from living wage to carbon reduction targets or the number of beehives on the group’s sites.”

AGMs also facilitate a forum for employee shareholders to share more widely any matters of concern outside the internal employee engagement processes.

“We should not forget that AGMs’ fundamental purpose is to secure shareholder approval and authorities on key company matters, including approval of the annual report, dividend policy and payments, remuneration policy and implementation, and the reappointment of directors,” says Whyte.

“The outcome of the votes on these resolutions are very often predetermined by proxy votes received in advance of the meeting… so the votes ‘in the room’ don’t determine the final outcome of the AGM. This can be a frustration for attendees.”

Another concern is that increasing numbers of younger shareholders have no voice at AGMs. EQ’s Shareholder Voice research shows that half of all US and UK shareholders are aged between 18 and 40, so mostly unable to attend physical AGMs during working hours.

Nick Folland, general counsel and company secretary at retailer Marks & Spencer, says: “If the AGM does not change, it will die. Declining numbers engage in traditional AGMs as fewer people hold direct shareholdings. But we need to communicate with our shareholders. So the AGM needs to stay relevant in a world where people conduct their business online.”

Companies and EQ worked together to respond quickly to travel restrictions and social distancing orders by enabling remote AGMs during the pandemic. Most were well received, which bodes well for their increased adoption in future. By removing the need to travel, virtual meetings encourage more attendees of any age and any location.

GSK offered its shareholders three ways to join its 2021 AGM: Lumi platform, telephone and Zoom. With the proliferation of video conferencing and the need to attract a more diverse shareholder base to AGMs, Whyte believes it will become the new normal for companies to facilitate and promote a variety of methods to enable remote participation.

This could promote long-term shareholder engagement. It could also reduce the cost and administrative burden of physical meetings.

However, remote and hybrid AGMs also have their challenges. Research published in 2020 by the Harvard Law School Forum on Corporate Governance shows the move to virtual shareholder meetings decreased the average meeting time by 18%, and time spent answering questions by 14%.

Other challenges with virtual meetings include low confidence in the technology involved and costs. Providers are, however, keeping up with an ever-changing technological landscape, and a wealth of enhancements will be available for the 2022 AGM season.

In 2020, the UK’s Financial Reporting Council reviewed AGM practices in over 200 companies, in light of Covid-related changes. It found 30 of them did not enable any shareholder engagement before or during the AGM.

“We were surprised to find some companies had no flexibility in their articles to allow virtual meetings,” says Maureen Beresford, head of corporate governance at FRC. “Some just had two people in the AGM, and no communications before or after.”

Among the review’s recommendations are a significant increase in technology use to ensure robust virtual interaction during AGMs, and greater access for all shareholders. The FRC also recommended promoting shareholder engagement throughout the year, and allowing retail investors to go to other investment discussions.

Folland says: “It’s easy to use a digital AGM to shy away from your responsibilities to your private shareholders. We are against that. The point of the digital AGM is to extend democracy and open the board to scrutiny.

“Communication before and after the meeting is just as important as in the meeting itself. Seeing the AGM as an opportunity to engage changes your approach and leads you to deliver better content with a longer shelf-life. For example, we shared meeting extracts on social media and received over 30,000 impressions.”

Another issue is that retail shareholders are concerned about the moderation of questions and lack of spontaneous answers at meetings, says Beresford.

“Companies should clarify why and under what circumstances they moderate questions,” she says. “Best practice is to allow shareholders to write questions before, during or after the event; and to answer them all.”

M&S has addressed this by appointing a shareholder advocate.

“As the questions come in live, the shareholder advocate groups them to make sure the most pressing questions are addressed at the AGM,” says Folland. “They select the questions shareholders want answered, not those the board wish to answer.”

“We want our shareholders to feel they have someone on their side, in the room, asking the difficult questions. It reinforces that this is a legitimate engagement with shareholders and not just a chat.”

M&S also answered all questions not addressed at its last digital AGM within 48 hours.

The FRC study also noted that there is some uncertainty around whether UK company law allows for virtual-only AGMs, despite companies, such as fashion luxury brand Jimmy Choo, holding their first fully virtual AGM in 2016.

Across the Atlantic, the US has embraced fully virtual AGMs and US practices may influence UK AGMs, Beresford says. However, there is concern that US companies may not engage with retail shareholders remotely as effectively as they would in physical meetings.

Whyte says a lot of board and management time and effort goes into hosting and running AGMs.

“We should look to ensure that these opportunities for interaction are as effective and meaningful as possible by making access for all shareholders easy and secure and that they can be run efficiently and cost effectively for the company,” she says. “The more flexibly the rules governing AGMs can be set the better for everyone.

“Safeguarding principles could be established to balance this flexibility such that truly virtual meetings could be operated for those companies who wish to use them, provided that they do not prejudice shareholders or stop them from putting their views and questions to the company. Companies’ articles should facilitate utilising the full range of technological solutions providing greater accessibility.”
Folland adds: “I hope digital AGMs become the norm because online, everyone has a voice. We went fully digital in 2020 and participation levels trebled compared to the prior year’s physical meeting.”

Remote meetings are also key for younger investors, says Steve Banfield, head of industry at EQ. “Gen Z investors are looking for remote participation. They embrace technology to research corporate reports, news and even board members,” he says.

“If you communicate more proactively, you can make the AGM work more to everyone’s benefit, rather than it being an inconvenience. There is room to give more information to more people, and enable all sizes and shapes of shareholder to ask questions more regularly.”

In EQ’s research, 75% of shareholders have voted at AGMs, with 22% voting regularly. This suggests there is still plenty of willingness to get involved with meetings if you can make them easy, interesting and relevant to shareholders.

Banfield says there are lots of opportunities to improve the way companies and shareholders interact and Gen Z investors will welcome this.

“The pandemic has driven the use of technology for companies and shareholders and the challenge will be to find a balance that drives attendance and engagement, particularly at the AGM itself,” he says.

“Companies may not continue with the fully virtual meetings they held during the pandemic but an increasing number will host hybrid events. With technology improving and regulators seeking to clarify the law, there will be a bigger shift to remote participation.”