social distancing Impacting investor rights

The UK Government has now implemented social distancing measures across the UK as the coronavirus outbreak continues to gather pace.

Mass gatherings are being postponed or cancelled in response, but UK companies with scheduled annual general meetings (AGM) are having to consider whether they do the same or find another way to hold AGMs.

The immediate issue is that those companies with a year-end of 31 December 2019 will be holding AGMs mainly in April and May.

With AGM season about to get underway then, some corporate lawyers have suggested that companies could push their AGMs back to June – the last possible date, by law, that they could hold it.

But the prospect of a flurry of AGMs being packed into one month before the July cut-off would not be in the best interests of investors and shareholders, in the view of Minerva, especially when there are other options available.

In March, the Financial Times reported that banking group HSBC had contacted shareholders about its annual meeting amid the coronavirus pandemic. The bank encouraged its shareholders to submit proxy votes as early as possible.

Housebuilder Crest Nicholson is also understood to be considering “alternative ways for shareholders to submit questions”.

FTSE 250-listed Micro Focus International confirmed on 18 March that its AGM, scheduled for 25 March at its offices in Berkshire, will go ahead but advised shareholders not to attend in person. Instead, the company said it was “encouraging shareholders to appoint the Chairman as their proxy (either electronically or by post) with their voting instructions”.

Guidance issued

On the other side of the Atlantic in the US, the US Securities and Exchange Commission  (SEC) has published guidance about continued shareholder engagement during the coronavirus outbreak.

The SEC stated: “In light of these difficulties, the staff guidance provides regulatory flexibility to companies seeking to change the date and location of the meetings and use new technologies, such as ‘virtual’ shareholder meetings that avoid the need for in-person shareholder attendance, while at the same time ensuring that shareholders and other market participants are informed of any changes.”

Law firm Norton Rose Fulbright noted that virtual AGMs held exclusively online without a corresponding physical meeting are not uncommon in the US.

But it added: “In some jurisdictions, there may be legal uncertainty as to whether holding a purely online meeting would satisfy all legislative requirements that apply to shareholder meetings.”

Minerva has already written to the Financial Reporting Council (FRC) asking for guidance on the issue.

On 17 March, the ICSA (The Chartered Governance Institute) issued guidance in conjunction with the FRC and Slaughter & May on arranging and conducting AGMs.

Paul George, FRC executive director of corporate governance and reporting said it offered “practical support” for companies on holding AGMs.

According to the FRC, the main options for companies are to adapt the basis on which they hold the AGM, delay convening the AGM if notice of the meeting has not yet been issued, postpone the AGM if permitted, adjourn the AGM or conduct a hybrid AGM.

It suggested that “good practice” is to try to give shareholders 21 days’ notice if the AGM is to be postponed.

Unlike the SEC, the FRC ruled that “virtual-only meetings are not viable given they may not constitute valid meetings”, but that companies can conduct a hybrid AGM – “a combination of a physical and electronic meeting”.

The importance of the AGM

AGMs are an important event in a company’s calendar, given that they provide retail and institutional investors with an opportunity to come face-to-face with the board.

As Norton Rose Fulbright stated: “AGMs provide one of the few opportunities shareholders have to question the board, engage directly with management, and hear the views of other shareholders.”

Shareholder engagement can help to force through changes at companies, whether or not that is management-related, and ensure companies are being held to account when it comes to their environmental commitments, for example.

Law firm Linklaters has said that “meetings must still be held so that the company can comply with legal deadlines and have the authority it needs to carry on its normal business”.

It is Minerva’s hope that companies will keep to their normal timetable to prevent a ‘super peak’ of AGMs in a few months.

If AGMs end up being held on the same or consecutive dates in June, this might result in a lack of attendance and, if social distancing restrictions remain in force, then companies may still have to discourage in-person attendance.

Last Updated: 19 March 2020
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