VIRTUAL AGMS: A NICE IDEA, BUT …
Getting the virtual format right is central to preserving the core purpose of the company AGM
he AGMS of listed companies are an essential opportunity for shareholders to interact with the board and management in a public forum, and to hear the views and concerns of other shareholders. They are, therefore, a crucial mechanism of accountability.
Covid-19 has thrown long-standing AGM practices into disarray, but SA corporate law, unlike that of many other jurisdictions, already provides for an electronic or virtual AGM. The big question is whether companies will embrace the potential for enhanced participation that such AGMS provide, or use them to frustrate shareholder engagement.
TSection 63 of the Companies Act provides for a shareholders’ meeting to be conducted entirely by electronic communication, but with a critical proviso — “as long as the electronic communication employed ordinarily enables all persons participating … to communicate concurrently with each other without an intermediary, and to participate reasonably effectively in the meeting”.
The act was ahead of its time: the absence of legal provisions allowing virtual AGMS has sparked a rash of crisis legislation in Europe to enable companies to comply with their statutory duties. In the UK, a company’s articles of association must specifically allow for electronic meetings, including hybrid meetings. Few of them do, and the UK parliament has not yet passed legislation to address the gap.
Shareholders of Jse-listed companies with a primary listing in London, such as Anglo American, Mondi and Glencore, are experiencing the extent of the difference between the jurisdictions as “AGM season” starts. Anglo and Mondi, for example, held closeddoor AGMS with just two preselected shareholders, and required shareholders to vote and submit questions in advance. Anglo published its responses to shareholder questions on its website after the event. Mondi, which had only committed to providing answers to “frequently asked” questions, did not, as none was asked.
Ironically, this totally inadequate AGM format appears to be the unintended result of shareholder concerns that virtual AGMS would diminish shareholders’ interests. For years, UK institutional investors have resisted backing legislation that would allow for fully electronic meetings, arguing that physical AGMS are invaluable opportunities to raise particular concerns with the board in a public forum.
While SA shareholders are spared the confusion about the legality of virtual AGMS, there are legitimate concerns that corporate boards will use the format to exert greater control over participants — and questions — than they are able to in a physical meeting.
SA companies have had to adapt quickly to the new circumstances. Alexander Forbes held the country’s first virtual AGM on March 31, with no reported hitches.
Sabvest shareholders had to cast their votes and ask questions in writing before its meeting, rendering shareholder participation rather moot, especially as participants struggled to secure access to the meeting. It is unlikely the Sabvest meeting constituted an AGM for the purposes of the Companies Act, which requires “concurrent communication without an intermediary”.
MTN’S AGM on May 21 was a “closed session for shareholders only”, so journalists and observers were unable to dial in.
Nedbank’s AGM on May 22 was slick, despite the odd technical glitch and some confusion about the use of more than one platform to access the meeting. Shareholder questions were read out by the company secretary and answered by members of the board.
While good enough in the circumstances, this is no substitute for the interaction that an in-person AGM provides. Other participants cannot see the questioners or their reaction to the board’s response, and there is certainly no opportunity for rebuttal or clarification, which most boards make hard enough even in an in-person meeting.
A more inclusive future?
Large institutional fund managers in SA rarely play an active role at AGMS. Their future format, therefore, rests in the hands of shareholder activists, who will need to ensure that virtual AGMS are not used to shut down difficult questions, or “difficult” shareholders.
Virtual meetings have the potential to vastly broaden shareholder participation, and this is a big plus. But once Covid-19 restrictions have been lifted, companies must revert to a more inclusive form of hybrid AGM. They must allow for participation by a broad range of interested parties, including by the millions of beneficial shareholders who wish to attend virtually, while also providing for the accountability that comes with physical presence.
Davies is director of shareholder activist
Virtual AGMS have the potential to vastly broaden shareholder
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