Virtual AGMs get FRC green light, but questions remain

Questions remain over how virtual AGMs can work for all investors, after a full season of shareholder and company meetings has been carried out online.

While some “excellent practices” seen over the course of 2020 have convinced the UK regulator to encourage new, digital ways for companies to conduct annual general meetings, the feeling is not fully reflected across the whole spectrum.

In a report, published October 6, the Financial Reporting Council said changes to how these meetings were carried out amid the pandemic, which it felt were already overdue, would be adopted more broadly going forward.

“The pandemic has raised issues related to AGMs that the UK was already failing to address,” the FRC said. “The approaches taken in 2020 have not always been the right ones either for companies or their shareholders, but there have been some excellent practices that can be translated into next year’s AGM season, whether or not we are subject to restrictions.”

Permitting new ways of conducting AGMs, such as through a virtual platform, would allow “policymakers, investors, companies, advisors, and other stakeholders to make changes that will offer both short- and long-term benefits for all”, according to the regulator.

This more open approach would tear open the “straitjacket to progression”, which had held back the traditional AGM model, the FRC said, making it inaccessible to many.

This approach would also enable all shareholders – including smaller, retail investors – to hold boards to account in line with good practice set out in the UK Corporate Governance Code.

The FRC said that through “even relatively basic audio and web technologies, companies should be able to offer some engagement on the day of the AGM”. It added that there should be a “significant increase in the use of technology that facilitates robust virtual interaction during an AGM, providing greater access for all shareholders”.

However, Claudia Kruse, managing director, global responsible investment and governance, APG, told Top1000funds.com that the current set up for AGMs “can only be an interim solution”.

She said possible solutions included hybrid models in which investors could participate virtually alongside a smaller physical meeting, said Kruse.

Another concern about the efficacy of virtual AGMs emerged in an academic study.

“Analysis of transcripts and recordings of in-person and virtual shareholder meetings in 2019–2020 shows that, relative to in-person meetings, the overall time of virtual meetings is 18% shorter, and 29% less time is spent by firms on answering each question,” wrote Miriam Schwartz-Ziv of the
Hebrew University of Jerusalem in a paper written in August.

“These findings indicate that communication between companies and shareholders is more limited at virtual meetings,” she said. 

Minerva has been championing virtual and hybrid AGMs as a way for companies to continue reporting to shareholders, giving them the option to vote, and for investors to still hold companies to account.

We have maintained that this approach would grow in popularity as companies and shareholders alike realised the benefits over the traditional ‘in-person-only’ meeting.

However, the success of this approach is contingent on companies considering what technology and tools they need to make these events functionally viable — and embracing them with the same vigour and openness to shareholders as they would in a traditional setting.

While the FRC has recommended the changes it outlined could be broadly taken on, it admitted that government would need to agree to offer “additional flexibilities or clarity on the interpretation of the Companies Act” as any change would need to be passed in law.

“This will take time and input from a wide range of stakeholders,” the FRC said. “Increased interest surrounding this issue from a cross-section of stakeholders has demonstrated that there is a desire for change and an enthusiasm to engage on this issue.”

To increase the pressure on government, therefore, the FRC said it would bring together a stakeholder Group on this matter, which would include “government, companies, and investors and their representatives to consider whether there is a need for legislative change, propose alternative means to achieve some of the flexibilities, whilst maintaining the integrity and objective of the AGM.”

The government has already shown it may be ready for change, too.

Speaking on 28 March 2020, just after formal lockdown was announced, Secretary of State Alok Sharma said that BEIS intends to introduce measures which will allow companies to hold AGMs “flexibly and in a manner which is compatible with the best public health guidance.”

Options made available included postponing meetings, holding them online, or by telephone using only proxy voting.

At the end of September, after successful lobbying by the Chartered Governance Institute, the government also agreed to extend its temporary adjustment to the Corporate Insolvency and Governance Act 2020 until 30 December 2020.

As a result, during the pandemic UK companies have had greater flexibility to either postpone their AGMs or to hold them in a socially distant way for the safety of both boards and shareholders.

Last Updated: 19 October 2020