Annual general meetings and the "new normal": shareholder engagement in the UK during COVID-19 and beyond

Dentons

With the UK's 2020 AGM season over, the FRC has published a review of how companies responded to the impact of the COVID-19 lockdown and set out its view of best practice for the 2021 AGM season. The review, AGMs: An Opportunity for Change, calls on companies, shareholders and other stakeholders to view the lessons of 2020 as an opportunity for change that will offer short- and long-term benefits.

Review of the 2020 AGM season

The review focuses on the role of the AGM as a key forum for shareholder engagement and examines whether the approaches taken by FTSE 350 companies that issued AGM notices between 10 March 2020 and 30 July 2020 served the best interests of shareholders.

Of the sampled companies, approximately 80% (163 companies) held closed meetings (only minimal shareholder attendance and voting by proxy required). Of these, 133 made arrangements to allow for shareholder Q&A with the board mainly through questions emailed to the company in advance of the AGM, while 30 companies did not mention Q&A arrangements or other shareholder engagement opportunities before or during the AGM.

The 18 companies that held open hybrid or virtual meetings enabled the board and shareholders to take part in an AGM that retained many of the benefits of a traditional physical meeting. These meetings allowed shareholders to ask questions and receive answers in real-time at the meeting. In some cases, they also enabled real-time voting (generally via an app), allowing those who wished to vote following board presentations and Q&A to do so.

Learning from the 2020 AGM season

Best practice for companies

The FRC found that shareholder rights are best served by companies which provide highly effective and clear communication before, during and after the meeting, and allow full participation from those shareholders that wish to attend, either in person (when this is possible) or virtually.

Noting that COVID-19 may disrupt the 2021 AGM season, the FRC urges companies to be prepared to move away from the traditional AGM format and embrace change both in the short and longer term.

Annex 1 of the review includes detailed best practice guidance that companies should consider when planning and conducting future AGMs based on learning from the 2020 AGM season.

The best practice guidance encourages companies to start preparing now for any changes they may want to make next year. This may include considering whether articles of association need amending, assessing technology options and costs, and starting discussions with their registrar.

The guidance then goes on to assess in detail best practice around:

  • issues arising before the meeting;
  • questions at the meeting;
  • webcasting with and without voting; and
  • voting by proxy.

In putting together the guidance, the FRC has assumed that most companies will wish to increase shareholders' ability to engage virtually, while at the same time acknowledging that there is no one-size-fits-all approach and that what is appropriate for a particular company will depend on its own circumstances and shareholder base.

Best practice for shareholders

The FRC is asking shareholders to ensure that they respond to requests to move to electronic communications where possible.

The FRC is also encouraging proxy advisors and investors to support resolutions to amend articles of association to allow for virtual or hybrid AGMs. However, in the case of virtual meetings, the FRC acknowledges that any concerns as to whether retail investors may be disenfranchised must be properly addressed.

Other measures

The FRC proposes to bring together a stakeholder group which includes government, companies, shareholders and their representatives to consider whether there is a need for legislative change and to propose alternative means to achieve flexibility while maintaining the integrity and objectives of the AGM.

To offer certainty to companies, the FRC is asking government to consider as soon as possible what measures may need to be brought forward to ensure AGMs are able to take place either virtually or as a hybrid during 2021.

On a specific legal issue, the FRC notes that, absent the COVID-19-related temporary changes made to the Companies Act 2006 (which are currently due to expire on 30 December 2020), there is uncertainty as to whether as a matter of UK company law a company can validly hold a general meeting on an entirely virtual basis. The FRC will continue to work with BEIS to consider how legislative clarity can be achieved on this issue.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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