Principles still apply when firms take AGMs and reports virtual
• Integrity of markets comes first as companies change how they interact with stakeholders
Listed companies globally are having to re-evaluate how they communicate with their stakeholders during the uncertainty of the Covid-19 pandemic. Temporary precedents have been set as a necessity to help accommodate these exceptional circumstances. But some of the changes implemented for the short term have long-term relevance as businesses look to the future.
Financial results and their sign-off have been postponed, integrated annual reports are being delayed and annual general meetings (AGMs) are being held in virtual environments as companies and their constituents self-isolate.
Many jurisdictions have made provisions to allow for a delay in reporting deadlines.
For instance, the US Securities and Exchange Commission has offered an extension of disclosures in the intensive quarterly reporting cycle, and the European Securities and Markets Authority advised national regulators to give issuers flexibility to delay publication of financial reports beyond the statutory deadline.
DEATH KNELL
Covid-19 may be expediting the temporary demise of physical financial calendar meetings, be they AGMs or results presentations, but the death knell has been ringing on these for years. This is a debate that has long occupied businesses, with many moving to more innovative and technology-based formats for their interim and full-year results, particularly as companies prove they are “walking the walk” in embracing digitisation.
Many would argue that a more dynamic and innovative format should have been adopted a long time ago, since the Csuite
can still maintain critical, interactive relationships with stakeholders but without a static, somewhat archaic format.
In these unprecedented times, in which events are moving apace, the steps taken by our own JSE to make changes to the AGM platform by launching a virtual alternative to enable and maximise shareholder engagement and voting are sensible and innovative.
There are many unknowns regarding Covid-19 and how it will ultimately play out, but what is clear is that this is a useful inflection point in investor communications. The question, however, turns to how this will fundamentally change the way companies interact with their stakeholders in future, while still upholding legal validity.
As always, the priority is to maintain the integrity of the capital markets. It is critical that investors are provided with as much certainty and clarity as possible, even when accommodating delays in disclosure, while demonstrating business resilience and sustainability once lockdowns begin to ease.
Companies still need to fulfil their obligation to engage with shareholders, but these new steps demonstrate agility in an unparalleled situation.
In planning for these contingencies, whether to take advantage of a relaxation of the reporting timetable or the use of alternative platforms and protocols, there can be no compromise on standards.
FUNDAMENTAL PRINCIPLES
Companies would be well advised to ensure they remain compliant with relevant corporate governance codes and listing rules, regulatory guidance and dictates of the company’s own articles.
Despite changes to reporting requirements and protocols during the lockdown, the fundamental principles of financial reporting cannot be compromised, such as access to information from results presentations and the importance of shareholder participation in the AGM process. Regular updates should be issued as circumstances change and new information arises that could have an effect on the company, to ensure maximum transparency.
The turbulence of markets will make the forthcoming reporting cycles more complicated than before, and the ability to make authentic, accurate predictions on outlook will be a severe test for listed companies.
Clear communication with investors is key, and the management must take every opportunity to continue to build trust and transparency. Now, more than before, a balance is required between the need for pragmatism to protect the wellbeing of shareholders and employees, and avoiding the pitfalls of selective disclosure.
This could directly influence the long-term ability of a business to survive.
These are supposed to be short-term measures, though their duration is still unknown, but some of the adopted changes to protocols are welcome and overdue. Moreover, they could have longevity long after we emerge from lockdown.
TRANSPARENCY
The catalyst for these changes is grounded in the need to maintain business continuity, but also has the potential to become widely accepted, helping evolve processes and protocols to be fit for purpose in future.
If we take some of the lessons from these temporary measures and make them a permanent reality as we adjust to our new normal, the opportunity is there for greater transparency and more interactive connectivity with stakeholders.