FRC research reveals Covid-19 disrupting AGM process but raises long term fears over shareholder rights
Disruption caused by the Covid-19 pandemic has forced UK companies to radically change their approach to holding physical AGMs and embrace hybrid and virtual AGMs. However, it is paramount any longer lasting changes uphold the rights of shareholders according to a new review by the Financial Reporting Council (FRC).
The FRC’s review considered the different ways companies held AGMs during the first half of 2020 and whether the approaches taken best served the interests of shareholders.
All companies managed to hold AGMs under very trying circumstances. The review found that the best organised and executed virtual and hybrid meetings enabled increased participation from shareholders. Companies that held closed meetings with retail shareholders unable to participate or vote on the day of the AGM disenfranchised those shareholders.
As part of the FRC’s review, a sample of 202 FTSE 350 AGMs were analysed. The review found:
- Four out of five (81%) FTSE 350 companies held closed meetings, requiring voting in advance via proxy
- Of the 163 companies that held closed meetings, 82% made some arrangements to allow for shareholder Q&As with the board.
- 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 to the board prior to or during the AGM. This is disappointing and has led to concerns that any move to fully digital meetings could disenfranchise retail shareholders.
The FRC’s review found 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. The FRC recommends all efforts should be made to ensure shareholders should have the ability to vote following presentations from the board.
David Styles, the FRC’s director of corporate governance, 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.’
The UK Corporate Governance Code sets out good practice for engagement with all stakeholders including shareholders. To achieve this, especially when faced with significant operational restrictions it is critical for boards to continue to engage, and where possible, increase engagement activities, as business models and long-term strategy come under increasing pressure. A well-run AGM will help to achieve this.
The FRC will convene a stakeholder group which includes government, companies, and investors to consider recommendations for legislative change, propose alternative means to achieve flexibility, whilst maintaining the integrity of the AGM. To offer certainty to companies the FRC is ask 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.
A link to the full review can be found here.