On 6 October 2020, the Financial Reporting Council (FRC) published its review of the different approaches taken by UK listed companies to holding their annual general meetings (AGMs) during the first half of 2020 and the impact on shareholder engagement. The review is available at https://www.frc.org.uk/getattachment/48c4ee08-b7be-4b7c-8f19-bcaf3d44e441/Corporate-Governance-AGM.pdf.
The 2020 AGM season has, for obvious reasons, been like no other. Closed meetings have become the norm. Companies have taken very different approaches to shareholder engagement. Tea and biscuits have definitely been off the agenda and several AGMs have even been held at Cobham Motorway Services (J9/10 M25).
All of this is reflected in the results of the review. The review looked at a sample of 202 FTSE 350 companies and found that:
- 80.7% of FTSE 350 companies held closed meetings, requiring voting in advance via proxy.
- Of the 163 companies that held closed meetings, 81.6% made some arrangements to allow for shareholder Q&As with the board. The review found that this was facilitated mainly through questions emailed to the company in advance of the AGM to either be answered at the AGM or by answers being posted to the company's website post-AGM.
- Of the 30 companies that held open meetings, 60% were facilitated through webinar or audiocast with live voting capabilities.
- 30 companies appear to have not made any arrangements for shareholders to ask questions of the board prior to or during the AGM. The review reports that this has led to concerns that any move to fully digital meetings could disenfranchise retail shareholders who, in contrast to institutional investors, typically only have access to directors at the AGM.
For the purposes of the review, an AGM was treated as a "closed meeting" if:
- the company expressly restricted shareholders from attending the AGM and no webinar or audiocast alternative was provided;
- the company provided a live webinar or audiocast but without the ability for shareholders to participate in live voting and Q&A;
- the company described the AGM as a ‘closed meeting’; and
- the company strongly encouraged shareholders to not attend or to vote by proxy.
An AGM was treated as an "open meeting" if:
- the company allowed shareholder access to the AGM as normal; and
- the company provided a live webinar or audiocast and the ability for shareholders to participate in live voting and Q&A.
The review includes best practice guidance that quoted companies (listed companies and AIM companies) should consider when planning and holding AGMs in the future whether or not there are restrictions on social gatherings and social distancing. The guidance reflects the FRC's belief that there should be a significant increase in the use of technology to facilitate robust virtual interaction during an AGM enabling greater access for all shareholders to ensure there is an opportunity to hold boards to account. The FRC also recommends that all shareholders should have the ability to hear from the board before voting on resolutions.
The FRC intends to form a Stakeholder Group to consider recommendations for legislative change, to propose alternative means to achieve flexibility in respect of AGM arrangements whilst maintaining the integrity of the AGM as an essential governance event for companies and their shareholders.
All quoted companies should take the time to consider this review and the guidance from the FRC as hybrid and virtual AGMs are probably here to stay. The FRC notes that: "It is easy to envisage a new era for AGMs which incorporates some of the technologies that we have all adapted to and become reliant on, whilst keeping those elements of the AGM that make it an important event for companies and investors." It will be interesting to see whether section 311 (1) (b) and section 360A of the Companies Act 2006 are amended or whether the interim arrangements for general meetings in the Corporate Insolvency and Governance Act 2020 are simply extended as an interim measure.
The FRC’s Director of Corporate Governance, David Styles said: “AGMs are not simply about voting, they are also an important mechanism for shareholders to gain an understanding of board decision-making, strategy and company culture. Covid-19 has forced many companies to radically alter the way they conduct AGMs and while most have adapted remarkably well, it is disappointing that some companies have not provided for meaningful input from shareholders, in particular retail shareholders.”