Is the time ripe for virtual AGMs?

Anastasia Petraki

Anastasia Petraki

Responsable de la recherche en politiques publiques

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Spring is upon us and among other things, such as blossoming trees and hayfever, it means that the prime annual general meeting (AGM) season is coming up. Under normal circumstances, asset managers would be gearing up to cast an inordinate amount of votes as shareholders of hundreds of companies, all within a very short timeframe.

Under Covid-19-induced lockdown circumstances, asset managers are trying to establish which AGMs are actually still going ahead and, if some do, whether they will be able to attend them. There is increasing talk of “virtual” AGMs as the solution to the problems posed by current restrictions that prevent shareholders from both travelling to and attending meetings.

To put everything in context, it is important to first remind ourselves what AGMs are for. From a purely technical point of view, AGMs are for companies to get approval from their shareholders on a number of issues, such as to approve the annual accounts, elect company directors, approve the directors’ pay package etc.

But, beyond the technicalities, the AGM is a forum where any shareholder, no matter where they come from and how many shares they own, can meet the managers of the company in person, see the whites of their eyes and ask them questions.

From a company’s perspective, even without any Covid-19 complications, having an AGM is expensive. At the very least, companies need to hire a venue, arrange for catering and possibly make travel arrangements for board members. Companies have every reason to minimise unnecessary cost and holding a virtual AGM may seem to make economical sense anyway.

In light of Covid-19 restrictions on travel and social gatherings, companies have effectively two options in regards to this year’s AGM: find a way to delay holding the AGM or use technology to have a more virtual AGM.

Companies in the UK and worldwide will decide for themselves what is the best course of action considering what is allowed by law. But this goes for this year. The big question is what happens after that. Are governments going to change domestic law to allow for virtual-only AGMs?

Will companies use the opportunity this year and introduce changes in their own rules that allow them to have virtual-only AGMs in the future? What kind of precedent is being set and how viable will it be to go “back to normal” once Covid-19 is no longer a restraining factor?

Schroders, as a shareholder of other companies, recognises that these are times of extreme circumstances, that companies may come under considerable stress both financially and operationally. Maintaining some semblance of “business-as-usual” is no easy task. Technicalities around AGMs may seem like a secondary issue. Looking at the real health risks, they certainly are.

But, as a company which itself is trying to navigate these unique times, looking after the money we manage on behalf of clients remains the number one priority. And holding our investee companies to account is one of the most important tools we have at our disposal to achieve this.

It is our view that shareholders should show flexibility during these exceptional times and companies should be allowed to hold virtual AGMs. But we see this as a one-off occurrence and not as a permanent change in the way AGMs are held.

We recognise that technology can be cost-efficient and actually facilitate access to shareholders that cannot attend in person. Virtual access can complement but should not replace real access. There are four reasons why physical AGMs are necessary for company accountability:

  1. The AGM is a place where all shareholders can make public statements to escalate concerns which companies cannot moderate or filter.
  2. The AGM sees shareholder democracy in action where a company and all of its board cannot hide behind technology and is accessible and accountable to every shareholder, no matter how small.
  3. A physical AGM allows investors to identify the views of other investors, register agreement and collaborate, making it harder for companies to push back against or even dismiss what may appear to be singled-out concerns.
  4. Having a company’s executives and board in the same room and seeing how they present themselves and how they react when confronted with challenging questions or uncomfortable facts gives insights into the company’s culture.

We appreciate this year’s unprecedented circumstances and believe a flexible approach that allows virtual meetings can be taken. We do not see this as a permanent change as we consider physical AGMs to be critical for all shareholders’ ability to hold companies to account.

Being in the room and seeing company executives in person allows even the smallest shareholder to have a voice even if they don’t actually say anything.

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