Conducting an Annual General Meeting (AGM) can be challenging, especially for publicly listed companies (PLCs). While an AGM is a welcome opportunity for a company's shareholders to interact with its management, when shareholders are not supportive of a company's board they may use an AGM to voice concerns on how a business is being run.
It is important for boards to plan ahead and prepare for potential issues that shareholders may raise. This means being aware of the current business environment when putting forward proposals and being ready to justify decisions taken and the proposals being put forward to shareholders. In this article, we consider practical guidance that may assist with the conduct of a company's AGM.
The FRC's Good Practice Guidance for Company Meetings may assist boards in managing shareholder engagement. The guidance contains principles that can be applied before, during and after general meetings. In addition to focusing on engagement with shareholders throughout the year, the principles provide guidance around engagement with shareholders relating to an AGM.
The principles suggest that companies should:
Use their AGM to engage in dialogue on shareholder matters that have a long term impact on the purpose, strategy, governance and future direction of the company
Avoid 'behind closed doors' meetings
Encourage shareholder participation by providing voting instructions in advance or encourage the use of a proxy
Embrace new technologies to increase participation and engagement (such as hybrid meetings)
Be prepared to explain in the notice convening a meeting why it has been decided to hold the meeting in a particular manner
Provide online functionality for real time questions
Ensure that the chair takes questions from all channels
Have reasonable character limitations on virtual platforms
Highlight technology support and access to it
Information disseminated prior to an AGM must offer clear instructions on how to attend and how to participate in the meeting; to include clear and timely instructions on how to appoint and instruct a proxy and how to opt-in to receive electronic communications. To achieve this, a company should consider appropriate means of communication, which often takes the form of a dedicated website area.
Shareholders should be fully able to engage in the business of the AGM. This can be achieved by providing details of how and when to submit questions and ensuring that the same rights to participate apply to a hybrid meeting as apply at a physical meeting.
During an AGM the company should provide an update on matters raised by stakeholder groups that the board consider to materially affect the company's strategy, performance and culture. The company should use the AGM to explain how matters raised were taken into account or influenced decisions and to highlight actions taken or proposed as a result of the engagement.
After an AGM, steps should be taken to enable shareholders to follow up on answers via a dedicated email address. Companies should consider creating written answers or summaries on submitted questions. If questions are not answered at the meeting, companies should indicate when questions will be answered. If the AGM is recorded, companies should consider making such recordings available to shareholders after the meeting, even if for a fixed term.
Where 20% or more vote against a board recommendation on a resolution, companies should explain when announcing the result what actions it will take (in accordance with Provision 4 of the UK's Corporate Governance Code on board leadership and company purpose which applies to London premium listed companies).
A further key principle is that companies should offer opportunities to update shareholders on company matters throughout the year rather than limiting updates to a sole AGM. The FRC's guidance includes useful suggestions on how that can be achieved, including 'Investor Relations' days and 'Capital Markets' days to provide updates on performance, non-confidential stakeholder presentations and making available materials, slides and recordings circulated at this type of event to shareholders generally.
Hybrid or physical meetings
Irish companies may continue to hold virtual and hybrid general meetings (both AGMs and EGMs) until 31 December 2023 under the Companies (Miscellaneous Provisions) (Covid-19) Act 2020. It is hoped that new legislation will be introduced to place virtual AGMs on a permanent statutory footing before these temporary provisions expire, and a recent consultation by Ireland's Department of Enterprise, Trade and Employment suggests that amendments to this effect may be introduced in the coming months.
Having said that, many companies here and elsewhere have decided to return to holding physical meetings since COVID-related restrictions on in-person gatherings were lifted. Whatever your preference, we suggest that the FRC principles referenced above should be considered when determining the type of meeting and how it is to be conducted.
The return to physical meetings brings with it a heightened risk of disruption in the form of protests outside the venue and shareholder activism within the venue, as has been seen recently at general meetings of, for example, Credit Suisse Group AG and Shell plc.
While Ireland has traditionally benefitted from high levels of collaboration between PLC boards and their significant shareholders, shareholder activism has spiked in global markets on a range of issues, from the purely financial to broader considerations around ESG matters. Institutional investors and asset managers are increasingly viewing their role as one of active stewardship of the companies in whose shares they are investing with a concurrent increase in participation in AGMs, and US-led foreign direct investment can result in shareholders with different cultural (and legal) expectations. It is therefore prudent for companies to plan their strategies around productive engagement with activist investors.
We recommend that company boards take the time to consider where there may be pressure points in their strategy and operations which an activist investor could target. These could relate to performance, to capital structure, or even to the sectors in which a business is operating. Once any such areas of focus are identified, it may be helpful to game out a company's response to activist arguments, identify individuals whose responsibility it may be to address the relevant argument(s) and ensure that relevant data is collected and understood internally. Where activists may be in a position to demand a board seat, it will be important for companies to understand their legal obligations around conflicts of interest and any relevant local law obligations, particularly to the extent these differ to an investor's home country laws.