​The COVID-19 pandemic introduced exceptional challenges for listed companies around the globe, and here in the UK it was no different.
 
The pandemic hit just when the AGM season was just getting into full swing and new rules meant that traditional physical shareholder meetings were no longer possible as restrictions were being placed on social gatherings and movement. During this period a range of guidance was published by the Financial Reporting Council (FRC) and The Chartered Governance Institute in association with the Department of Business, Energy and Industrial Strategy. Sometime later, we saw the publication of temporary legislative measures that supported the actions of listed companies in relation to their shareholder meetings, providing the legal backing for meetings taking place behind closed doors or through the adoption of technology to support remote attendance.
 
The experience of the 2020 season has shown that companies have taken different approaches and many, often due to limited timeframes, opted to adhere to the minimal requirements to ensure the meetings could go ahead. The prevalence of meetings taking place with only a minimum quorum in attendance and the criticism this has sparked in some circles has prompted the FRC to consider the actions of the season. They have looked into the role of technology in ensuring good governance practice and wider stakeholder engagement.
 
The FRC’s review of the 2020 season ‘AGMs: An Opportunity for Change’ provides some considered findings based on extensive analysis of the meetings held by FTSE 350 companies, interviews and discussions with companies, shareholder groups, registrars, and service providers. It also provides comprehensive best practice guidance based on learnings from this AGM season, with a view to helping companies as they plan and conduct their shareholder meetings in 2021. 

Methodology
The FRC looked at 202 AGMs held between March and August and categorised them into three groups:
 

1. ‘Closed’ meetings

    • Shareholders were not offered the opportunity to ask questions prior to or during the meeting.
    • Shareholder requested to vote in advance via proxy.
    • Shareholders invited to submit questions in advance with some or all answers placed on the company’s website.

2. Meetings with some shareholder engagement

    • Board members available on the day of the meeting to present information via audio or webcast.
    • Shareholders were able to submit questions prior to the AGM, and a selection answered during the AGM with others answered on the website.
    • Shareholders requested to vote in advance via proxy. 

3. Meetings with more shareholder engagement

    • Shareholders were able to engage virtually with the board on the day of the AGM.
    • Included options to submit questions prior to and during the AGM.
    • Shareholders were able to vote during the AGM. 
 
For their analysis, the FRC looked at the notices of meeting, and updates to AGMs published on the Practical Law database, together with a sample of 202 published notices for meeting held from 10 March – 30 June.
 
These meetings were then categorised as either ‘closed’ or ‘open’.

Closed

Where companies: explicitly restricted shareholder attendance or strongly encouraged non-attendance, provided a webinar/audiocast but no live voting/Q&A or described the meeting as closed.

Open

Where companies expressed in one or both of the statements that attendence was normal or provided live webinars/audiocasts with ability to either vote or ask questions during the meeting.

​Findings
  • 80.7% (163 companies) held ‘closed’ meetings
  • Of the 163 companies, 81.6% had arrangements to allow shareholder Q&A, and 18.4% (30 companies) seemly offered no way for shareholders to engage either before or during the meeting.
  • 30 companies held ‘open’ meetings
  • Of those 30, only 12 used technology that wasn’t just a webinar/audiocast
  • Due to the lack of clarity regarding the term ‘place’ within s.311 and s.360A of the Companies Act 2006 many companies avoided using virtual or hybrid meeting solutions until the emergency/supporting legislation came into force. Consequently, many companies opted for ‘closed’ meetings in March and April.

The interpretation of the word ‘place’ in connection with a meeting within the Companies Act is something that the FRC is conscious that needs to be addressed. They state that they will be working with BEIS to seek clarity for the market.
 
Unsurprisingly, ‘closed’ meetings with no opportunities for shareholder engagement have been seen as disenfranchising retail shareholders and not being aligned with the principles of the UK Corporate Governance Code.
 
The report draws attention to a number of good and bad practices in this regard, such as:
  • Good
    Allowing multiple avenues to submit questions

    Clarity on how questions may be grouped

    Responding to each shareholder question individually post event

    Posting all questions and answers online
  • Bad
    Limited characters allowed for questions

    Only allow postal questions

    Limited time to submit questions

    Grouping of questions with a generic answer

    Not responding to questions
​Those companies who utilised technology to facilitate a ‘virtual’ or ‘hybrid’ meeting allowing live Q&A and voting, were seen by shareholders as being better at engaging with their members, and it was felt that boards could better demonstrate their awareness of a situation or position.
 
Companies need to be mindful that as we move into the 2021 season restrictions on public gatherings and movement will likely still be in place. The FRC suggests therefore that they should actively prepare to plan to move away from a traditional AGM.
 
The report recommends that companies should engage major shareholders ahead of amending their articles (should this be necessary) and focus on allowing flexibility in their meeting format. If they are seeking to allow ‘virtual only’ meetings, they must provide greater guidance to their shareholders as for reasoning, otherwise, it is likely to receive strong opposition.
 
There have been some strong feelings expressed among shareholders that they haven’t had the ability to vote after they have heard from the board, by virtue of the format of some meetings this season. One suggestion that has been made therefore is to separate the formal business of the meeting (i.e. the voting) from that of the presentations and Q&A, which could occur prior to the voting closing.
 
The future is fully digital
The UK is still behind the curve in its acceptance and use of technology to hold virtual or hybrid meetings and there are a number of factors causing this, not least the different interpretations of relevant legislation, the views of shareholders, availability, cost and confidence in the technology.
 
The report rightly reflects the fact that the technology is there and has been proven, both in this market and elsewhere in the world, and that maybe the pandemic is the force that is going to move the dial on its acceptance and usage.
 
There are some distinct benefits to shareholders in making technology to facilitate remote participation available, including a reduction in costs associated with travelling to meetings and removing a restriction on the number of meetings they can practically attend in a single day. Companies also need to consider if adopting increased technology can have cost savings in other aspects of their meeting such as venue hire or ensuring the international based directors do not need to travel for the meeting.  
 
It is recognised in the report that while there is one main supplier of virtual and hybrid meeting technology, costs may be a concern for companies. However, as more companies adopt the technology, more providers may emerge.
 
The FRC suggests that once rules on social distancing are relaxed, companies should still consider using technology to enhance their shareholder meetings and facilitate remote participation.
 
The FRC also recognises the importance of electronic communications and call on all shareholders to supply an email address when requested by the company. They also see the benefits of an email address being provided when becoming a member in the first instance and having it passed to the company or their agent via the broker, something the registrar community have long advocated for.
 
Next steps and best practice
The FRC and BEIS are intending to look at ensuring clarity regarding the ability to hold virtual and/or hybrid meetings in future.
 
A stakeholder group will be established to consider improvements to AGMs, whether through legislative change or alternative measures to allow flexibility.
Companies should prepare now for 2021
› Consider what you might need to do now for next year
› Engage with experts early if you wish to adopt additional technology to facilitate remote participation
› Check your articles and consult with investors and legal experts
› Discuss options with us
Prior to the meeting
› Have clear communication with shareholders, and a location to direct them to where updates can be found
› Consider the use of a dedicated way for shareholders to raise questions and a dedicated method for shareholders to contact the registrar
› Use webcasts rather than only audiocasts
Questions and voting
› Facilitate questions in real-time
› Publish the full transcript of Q&As
› Provide enough time for questions to be submitted
› Consider using both paper and electronic proxy voting
› Issue electronic reminders for proxy voting deadlines