PERSPECTIVE3-5 min to read

Annual shareholder meetings need a shake-up, but how?

Shareholder meetings are often uninspiring but they are essential for shareholder democracy. We consider how they could be revamped to better serve the needs of all stakeholders.

Photo of people at a company meeting


Tim Goodman
Head of Corporate Governance

Annual shareholder meetings are necessary but they can be costly, ill-attended and often do not add value other than their vital purpose under corporate law. Is it time to rethink them? While much of this piece is written with a UK perspective, we think that the problem with these meetings is international in nature and efforts to revamp them should be considered across the world.

The role of shareholder meetings as the ultimate decision-making body of companies is vital. While most directors are elected with overwhelming majorities, the right to vote for or against directors is the most important shareholder right.

It is this democratic accountability that enables shareholders to wield influence without necessarily having to vote against the board’s proposals. Indeed, there is the argument that voting against boards’ proposals may signify a failure of engagement or even a lack of engagement, rather than an effective escalation tactic. 

Nevertheless, the fundamental right to vote, particularly in companies without a controlling shareholder, can have a powerful impact by encouraging boards to listen to shareholders and add weight to engagement. In other words, it is the right to vote itself that has a powerful influence over boards, arguably, as much as the act of voting against a proposal or the re-election of a director.

Annual shareholder meetings have a problem

The Covid-19 pandemic led to shareholder meetings being held virtually on a widespread basis for the first time in history. But now that the pandemic is over, companies that are seeking to hold ‘virtual only’ meetings as a default need to demonstrate that the advantages to shareholders of virtual meetings outweigh the disadvantages, and that there is no diminution of shareholder rights as a result.

Shareholder meetings in most of the world are often not well attended and company boards are concerned about the lack of attendance, particularly from institutional investors. The move to hybrid meetings should have encouraged greater participation, via virtual attendance, but anecdotally this has not made a significant difference.

There are, therefore, calls from the listed companies to revert to physical only or virtual only meetings. In some countries, Italy for example, there are even moves to enable companies to hold meetings effectively behind closed doors, be those doors physical or virtual.

Poorly attended meetings have not always been the case. Germany, for example, often has shareholder meetings that are very well attended, including by institutional investors who not only ask questions, but make speeches about their views on the companies. These events can last for hours as institutional and retail shareholders participate actively. However, sadly, such participation has been curtailed by many German companies moving to exclusively virtual events after the pandemic.  

In the US, Berkshire Hathaway’s annual shareholder meetings are legendary for their attendance. They are used to explain the company’s strategy and to give investors, including retail shareholders, the opportunity to learn about the business, including from the management of the company’s portfolio companies.

Walmart used to use its annual shareholder meeting as an opportunity to communicate with its employees and suppliers who were there in their thousands (I understand that an employee from every store globally used to attend) in a basketball stadium, full to capacity. However, Walmart now holds its meeting virtually.

Best practice

We support the UK Corporate Governance Institute’s best practice guidelines for holding AGMs. In particular, we expect all directors to attend and be ready to answer questions. For instance, the board chair and the committee chairs should be available to answer questions about the work they have done during the year.

While some shareholders may hold views that are not widely shared, their right to ask questions is important. However, a virtual only meeting risks diluting the sense of the meeting for those participating. They will not necessarily see who wishes to ask questions, their reaction to the answers provided, whether the chair has acted fairly in choosing people to ask questions and so forth. Importantly, the body language of those asking and answering questions is also, at least, partially lost. This is also the experience of those participating virtually at meetings that are also held physically.

The extent to which meetings held partially or wholly virtually can replicate these important nuances of a physical meeting is of vital importance to us. We think, therefore, that hybrid meetings should seek to provide good quality video-links and use the latest audience participation software.

Such software should enable physical and virtual attendees to ask questions and to show their support for others’ questions (such functionality provides an additional way the chair and other participants can obtain a different, possibly deeper, sense of the meeting that is not currently available in traditionally organised meetings). It should also enable questions to be filtered out transparently, for example if they are duplicative.

Our experience of virtual meetings is mixed: some companies enable shareholders to ask a wide variety of questions, though it is not clear how those questions are selected. We have attended meetings where no questions critical in any way of the board have been asked by the moderator.

Virtual only meetings

We supported the changes necessary to corporate law in various countries around the world to enable virtual only shareholder meetings during the Covid-19 pandemic. We reluctantly support resolutions that request the ability to hold virtual only meetings provided that there is an annual public commitment from the board that such a right will only be used in extreme circumstances, such as another pandemic.  

In the event that our trust is abused, we will vote against the director we deem most accountable, such as the chair or the chair of the governance committee. We may consider further action to attempt to restore our democratic rights.

Protests at AGMs

Some attendees seek to use shareholder meetings as a platform to raise publicity for an issue that they are concerned about.

We believe that shareholder meetings should be a forum that facilitates peaceful and constructive discussions and debates on strategy, resolutions to be voted on and what is in the best interests of the company and its stakeholders. While we do not agree with disruptive protests or sabotaging behaviour, we expect companies to attempt to facilitate sensible interaction at shareholder meetings and provide ample opportunity for shareholders to ask questions, even difficult ones.

Simultaneously, we expect shareholders not to abuse this right and expect all parties to treat all others with respect and in accordance with their rights under the rules of the company and of established legal precedence.

Re-imagining the shareholder meeting

The frustration about shareholder meetings is shared by both companies and their shareholders: often institutions do not attend; meetings can be perfunctory with low turnout or a large attendance with repetitive questions often on a single or connected issues.

At companies that have controversial business models, there can be a lot of shareholders with small shareholdings who attend to make their feelings known to the board through questions and increasingly through what other shareholders and the board may think are disruptive, or worse, tactics.

Might it be possible to find different ways to engage with stakeholders? Is there merit in having capital market days with a sustainability component for retail investors and other stakeholders? Could these be held virtually, but with demonstrable transparency? Could these be held in advance of the shareholder meeting to act as a hustings event?

After all, proxy voting in advance means that the results of the meeting are not usually materially affected by votes cast on the day. It could, therefore, make greater sense to have a debate on the most important issues before the meeting itself.

Should companies engage at such events with stakeholders who represent legitimate constituencies, such as bondholders, employees and other stakeholders such as NGOs like CA100 and ShareAction, on the understanding that they use their influence to prevent disruption of the shareholder meeting itself? No doubt, all parties acknowledge that peaceful and respectful protests outside the meeting venue are legitimate.

Such action may antagonise those who are intent only on disruption. However, they may serve to demonstrate a positive willingness to foster mutual understanding, to develop more rounded stakeholder dialogue and serve to help find agreement on at least some aspects of complex issues to help improve performance.

As mentioned earlier, Italy is enabling companies to reduce rights in relation to shareholder meetings. However, in Italy, shareholders have the right to ask questions of the company that should be replied to in advance of the shareholder meeting and published on the company’s website.

We think it is time to have a wider debate on the purpose, benefits and downsides of the current shareholder meeting and think about ways it can serve better the needs of shareholders and other stakeholders. This piece is an initial contribution to such a discussion.

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Tim Goodman
Head of Corporate Governance


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