One of the many ways that Covid-19 in 2020 has affected companies has been their ability to hold AGMs. It is quite possible that similar disruption will continue into 2021.
On 6 October 2020, the Financial Reporting Council (FRC), which sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work, published a review of best practice regarding AGMs with a view to improving shareholder engagement despite the impact of Covid-19. The review addresses the different approaches companies took when holding AGMs during the first half of 2020 and which responses worked (or did not work) for investors and other stakeholders.
The review, available here, also sets out best practice guidance for the 2021 AGM season, recognising that one size does not fit all companies and all shareholders.
In line with the FRC guidance we recommend that companies should prepare early for their 2021 AGMs and consider doing the following:
- Articles: check whether your Articles of Association need amending to allow virtual or hybrid meetings and consult with investors and your legal team to see what is possible. The FRC review notes that limiting amendments to provide for only hybrid meetings is likely to garner more support than providing for fully virtual meetings (which the Investment Association has historically not supported)
- Questions: give shareholders sufficient time to submit questions electronically to a dedicated website or email address (along with hard copy mailed in questions). Do not require questions to be submitted too far in advance of the meeting
- Prepare: identify a technology provider and platform that enables the meeting to be held virtually and that will allow shareholders to hold the board to account through Q&A and discussion and ultimately to exercise their vote
- Security and voting: ensure that the chosen platform is secure and, where real-time electronic voting is to be employed, that there is a means of verifying the identity of people voting to ensure that they are actually shareholders or validly appointed proxies
- Plan B: carry out contingency planning for the event that the technology fails or breaks down on the day. Clearly communicate details of any backup plan to participants prior to the event
Whilst all companies should aim for proper accountability and proper shareholder engagement, no two companies are the same. Bearing in mind the goals of transparency, accountability and engagement, companies might consider running a costs analysis to consider whether the potential cost savings of a virtual or hybrid meeting outweighs any additional expenses.
For some companies, the costs of hiring a venue and organising the logistics of the AGM is costly and technology will provide a saving. For other, smaller, companies the costs of technology including voting on the day may be prohibitive at present.
The Financial Reporting Council (FRC) recommends significantly increased use of technology and electronic participation to facilitate robust virtual interaction during an AGM, or in tandem with physical meetings as a hybrid approach. It also recommends that going forward, shareholders be asked to provide an email address when purchasing shares and that they respond to requests to move to electronic communications where possible.
Effective early engagement with shareholders (also emphasised as all round good practice by the UK Corporate Governance Code 2018) is more likely to achieve support for whatever form of AGM and engagement is proposed to be adopted, and for a move towards greater electronic communication more generally.