Virtual shareholder meetings are here to stay

“Satyug beeta, Kalyug aaya, par aap ka roop badal na paya/ Aap aaj bhi wahi ho, jo dhool mai phool khilade” (Good times give way to difficult days. Yet all through this period of momentous change, you have retained the ability to turn dust to gold)

Hearing these verses read aloud, you may believe that you are attending the Jaipur Literary Festival, till this couplet is followed by the demand for a higher dividend payout. Last year, this would have jolted you back to the meeting venue, this year to your desk at home — since the meeting was virtual. Nothing it seems has changed.

For the occasional attendee, this bit of poetry might lighten the mood, and provide a welcome distraction from the regimented format set-forth well in advance of the meeting and based on regulations that govern their conduct. But for those retail investors who take their investments seriously, these meetings are the one annual forum to gain insights into the company’s working and question its management. Companies, they complain, are all too happy to have the meeting hijacked by a handful of investors, who have no interest in the actual working of the company and only show-up because it is something to do on an otherwise dull afternoon. And the refreshments.

The usual format today is some theatre — a demand for higher dividends and a bonus, before moving on to business-end. The chairman’s speech is taken as read, followed by a few hurried resolutions authorising the company to do certain acts in accordance with the law and the company’s byelaws. Then it’s time to serve chai and samosas. And while a few years ago, directors and senior management mingled with small shareholders, they rarely do so today. Most shares are e-voted before, so it is no surprise that institutional investors have deserted annual general meetings (AGMS) in favour of one-on-ones with management, leaving diligent small investors orphaned.

Five years ago, the IFC-BSE-IIAS Corporate Governance Scorecard (https://www.iiasadvisory. com /governance-scorecard) advocated that companies webcast these meetings to enable a larger set of shareholders to participate. The Kotak Committee on Corporate Governance, of which I was a member, picked up on this, and mandated that the 100 largest companies do a one-way webcast from FY19 (https://bit.ly/2zyrbcc). The cost and bandwidth availability were seen as constraints. The experience gained was meant to pave the way for a wider roll-out. Unexpectedly, two years later, virtual meetings have become the norm.

After the initial set of physical meetings started getting postponed from end-march, the Ministry of Corporate Affairs (MCA) by early April issued guidelines doing away with a physical quorum and spelling-out rules for virtual meetings (https://bit.ly/3k43gri). Companies and investors have been quick to embrace these: What has been accomplished in the last quarter was unimaginable when the MCA issued its guidelines in early April.

The smoothness with which all pieces fit together is remarkable. A big shout-out to MCA and the Securities and Exchange Board of India (on being proactive and flexible), the depositories and technology providers (for virtually a glitch-free delivery), secretarial teams, IT teams and managements, and the auditors who toiled to finalise the balance sheet (for the execution in the face of Covid-19 related operational challenges). Many may have put themselves at grave personal risk to ensure a timely completion.

There were still a few who complained about the difficulty of logging-in or not being able to see the chairman. But on the aggregate, these are minor issues. The Q and A with the management, however, remains a sore point with investors. The same investors who dominated the physical meeting now commandeer the screen. More worrying is that questions often remain unanswered. It is easier to ignore them now. One often hears, “There is an echo, let’s move on to the next question please”.

Change might happen for two reasons. One, there is now a recording of the meeting on the website. If none of the probing questions can be purportedly heard, it will be a red flag for the investor. Second, virtual meetings will pave the way for hybrid meetings — a virtual and physical meeting combo. If some serious investors are physically present, supplementing those who participate remotely, it might keep the managements from muting investors. And once questions start getting answered, more investors will begin to participate. For many, reading the managements body language is a strong reason to show up. And if board members mix with shareholders, it will be a bonus. But more needs to change.

Virtual meetings have no doubt preserved the form of AGM’S but have also provided us with a window to rethink their substance. We must be bold in reimagining how these meetings become relevant again. As a shareholder at a recent AGM dramatically said: “Sangharsh ke marg pe jo veer chalta hai, wahi iss sansar ko badalta hai” (only by walking the difficult path, can we bring change.)