FRC Review: AGMs – An Opportunity for Change

White & Case LLP

White & Case LLPOn 6 October 2020, the Financial Reporting Council ("FRC") published a report on the holding of annual general meetings ("AGMs") by FTSE 350 companies between 10 March - 30 July 2020 following the start of the COVID-19 pandemic (the "FRC Review"). 

The FRC Review considers, in light of the COVID-19 pandemic, the different ways that companies held AGMs during the first half of 2020 and whether the approaches taken best served the interests of shareholders. It also sets out best practice guidance for AGMs.

Sample of 202 FTSE 350 companies carried out by the FRC

Sample of 202 FTSE 350 companies carried out by the FRC (table)

Key observations

#1 UK Quoted companies listed on the LSE

Adviser Rankings, US law firms
July 2020

#1 Global Cross Border M&A

Bloomberg Q3 2020, by value

The FRC Review makes the following observations: 

  • COVID-19 has provided a unique opportunity to consider the purpose of the AGM, but unsurprisingly there is a divergence of views as to what the future should look like: some stakeholders believe that "a revolution in shareholder meeting has been long overdue" and that "the current format is no longer relevant", while others remain convinced that physical meetings should be returned to as soon as possible. 
  • Closed meetings, with a small quorum and no shareholder engagement (i.e. no shareholder Q&A written or otherwise) prior to, during or after the meeting are not considered best practice (this year, 30 of the 163 companies who held closed meetings fell into this bucket). This is unlikely to be acceptable to either institutional bodies or retail investors next year.
  • The FRC report provides examples of good and poor AGM practice, with a real focus on what a good Q&A process looks like (namely allowing Q&A to be submitted electronically to a dedicated website or email address, live Q&A at the meeting, not requesting questions to be submitted too far in advance, making it clear on what basis questions would be grouped, and all Q&A posted on the company website following the AGM). 
  • The FRC encourages proxy advisors to support resolutions to amend articles to allow for electronic meetings, but emphasises that clarity on the use of such flexibilities should be built into the resolution and supporting documents. Companies need to engage in constructive dialogue with all shareholders to provide them with reassurance that they will continue to be effectively engaged in meetings.
  • Notwithstanding the Corporate Governance and Insolvency Act 2020 ("CIGA"), there remains uncertainty as to whether a company can validly hold an AGM or General Meeting ("GM") on an entirely virtual basis – this stems from concerns over the interpretation of s.311(1)(b) Companies Act 2006 which requires the notice of the meeting to state the "place" and it is unclear whether an electronic platform is a "place".
  • One size does not fit all companies and all shareholders and companies need to consider with their advisers what the appropriate format is for their size and shareholder base.

Next steps ahead of the next AGM season

In our view, both AGMs and GMs will continue to be impacted by COVID-19, and while shareholders and proxy advisers have been pragmatic and flexible this year (particularly around the lack of shareholder engagement), this may not be the case next year as companies will have had time to put in place appropriate arrangements to ensure that there is more shareholder engagement. 

The FRC recommends that publicly listed companies should consider now what changes they want to make for next year. If companies want to use technology, they should speak to their advisers to work out what is possible and what is not. Furthermore, we suggest that companies should take advantage of the flexibilities offered by CIGA and update their articles now to ensure that they allow for future electronic meetings for when the flexibilities of CIGA come to an end. 

The FRC has noted that it is best practice for companies to make every effort to ensure that shareholders have the ability to vote following presentations from the Board – this is impossible to achieve with proxy voting and with no mechanism to vote at the actual AGM. The FRC therefore notes that one option is to split the AGM into two events – (1) one event for presenters, shareholder Q&A and consideration of matters in the annual report, and (2) another event for voting on the resolutions raised.

Longer term considerations 

While there is enthusiasm for fully virtual meetings in the UK, the FRC notes that there is still considerable opposition to fully virtual meetings. Shareholders want to understand the "mood of the room" and in relation to directors, shareholders want to "see the whites of their eyes". 

Technologically, the FRC notes that there is a lack of availability and confidence in the technology required for a fully virtual AGM. In the UK there is only one provider who offers an AGM package which provides a voting application so the technological options for fully virtual meetings are still limited. To help facilitate a transition to electronic meetings, shareholders should be asked to provide email addresses when purchasing new shares. 

As to whether a company can validly hold an AGM or GM on an entirely virtual basis, the FRC is bringing together a Stakeholder Group on the matter and is working with the government to consider how clarity on the interpretation of s.311(1)(b) of the Companies Act 2006 can be achieved through both legislative and non-legislative means.

Please see here for a link to the FRC Report.


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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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