As Covid-19 struck, governments issued new guidance or updated rules allowing companies to shift physical meetings online in order to maintain social distancing. Permitting Online AGMs has thus far been considered a short-term measure to help companies and their shareholders through the pandemic but the future of AGMs needs to be carefully considered.
The shift to virtual AGMs during the pandemic has given rise to criticism from investors. Many argue that many investor questions are being screened out by companies, and the opportunity to engage with boards and management is being reduced. Some suspect that companies are using the pandemic as cover to downgrade the AGM as a mechanism of board accountability, and that when the pandemic subsides, they will stick with a diluted virtual format into the future. This concern underpinned, for example, the significant opposition to a virtual AGM expressed by investors at the Standard Life Aberdeen AGM in May.
However, there is another side to the argument. We surely need to move with the times, and utilise technology in a way that makes the AGM process more efficient and inclusive. There is nothing inherent in the concept of a virtual AGM which implies that they should lead to less accountability or reduced scrutiny of companies. Furthermore, Virtual or hybrid AGMs have many potential benefits – including permitting a wider a group of shareholders and stakeholders to participate in the process.
For example, it was noticeable at Mark and Spencer’s virtual AGM this year that, in addition to the 1500 registered shareholders taking part in the live event, more than 15,000 viewed proceedings in the subsequent days – of which around 8,000 were M&S employees.
The way in which virtual AGMs are currently managed may however need some reform. It is a concern that, rightly or wrongly, some questions are being filtered out, typically by CoSecs, who may determine that some lack relevance or may be repetitious.
We are still in the early days of virtual AGMs. But in order to increase trust in this process, it may be useful to incorporate some form of independent arbitration the coordination of virtual AGMs, including the selection of questions – an independent expert who can advise Chairs on balancing investor and board perspectives.
We will also benefit from the development of best practices for virtual AGMs, some of which could be incorporated into the UK Corporate Governance Code or associated guidance.
However, I do have some sympathy for boards who feel that the current format of AGMs – both now and prior to the arrival of the pandemic – leaves something to be desired. Nowadays, the AGMs of larger companies are primarily being organised for small, retail shareholders, who represent only one source of accountability for companies – a very distinct perspective amongst a wide range of other stakeholders.
Institutional investors with a substantial economic interest in companies typically have their own mechanisms for engaging with boards – and often don’t even turn up to AGMs or vote via proxies.
I am not suggesting that the small shareholder voice in respect of company performance is unimportant. But what about the voice of other stakeholders – employees, customers, suppliers, and so on – whose perspective on the company may be of great significance for the company’s long-term success?
Another problem with the existing AGM format is that there is a huge ‘pile-up’ of these meetings at certain times of the year. Japan provides an extreme example of this, with more than 80% of major companies having their AGM within the same week. But there is still concentration of these meetings in the UK and other countries in certain months, which poses a real obstacle to meaningful accountability.
My view is that – for the companies of the future – we need to shift the focus away from the traditional AGM the central, all-encompassing accountability mechanism for companies, and shift to a system where we engage with differing stakeholders in differing ways and differing formats. This will still include providing small shareholders with an opportunity to engage with boards and exercise accountability. But this will take place within the context of other events during the corporate calendar, including small shareholder days and stakeholder discussion panels with board members and executives.
Of course, we will still need a mechanism through which the process of shareholder voting on GM resolutions can take place.
But for the large, multistakeholder organisations of the future, there is a need for innovation and fresh thinking in terms of how we achieve meaningful corporate accountability.
Dr Roger Barker is the IoD's Director of Policy and Governance