Against a background of falling attendance at annual general meetings (AGMs) globally, Claire Corney, Senior Managing Director – Regulatory & Market Initiatives, Global Capital Markets, Computershare, looks at how technological developments can get the AGM back on track as the premier opportunity for effective shareholder engagement.
AGMs have traditionally been a central feature of shareholder engagement with their investee companies. AGMs provide the opportunity for shareholders small and large to listen to the board, ask questions and participate in the official business of the company. However, the AGM has come under pressure, with questions raised about its continuing relevance. In a recent article in the Financial Times, Jamie Dimon, Chair and CEO of JP Morgan, called annual shareholder meetings ‘a complete waste of time’ and ‘a joke’. He added that the AGM has become ‘hijacked by people who have only political interests and don’t have any interest in the future health of the company’ (Financial Times 27 February 2018, ‘Jamie Dimon calls shareholder meetings complete waste of time’).
Is this really fair? Let’s consider some current issues with AGMs.
Are shareholder meetings a waste of time?
Globally, a significant majority of meetings have fewer than 100 attendees, and in many markets the attendance level is declining. Smaller companies may see only a handful of attendees, if any. Meetings often last an hour or less, with some wrapped up in minutes. There are notable exceptions however. For example, companies in Germany typically have meetings that run a full day and attract larger crowds. Hong Kong and Mainland China have actually seen increasing attendance (for meetings where there are more than 100 attendees), however only a relatively small proportion of attendees actually vote.
In markets such as the US, the UK, Australia, Canada and South Africa, the majority of shareholder voting occurs prior to the meeting. Several markets have however expressed concerns about current proxy voting processes and an overall decline in voting participation rates. Various reviews and reforms have been initiated (see Table 1: Regulatory reform in shareholder voting). Again, there are exceptions to the dominance of proxy voting. Germany, Denmark, Hong Kong and Mainland China show greater levels of in-meeting voting, suggesting that local market dynamics influence voting patterns. Globally, companies with more concentrated ownership can see higher levels of in-meeting voting. Also, the lingering use of ‘show of hands’ voting, where only attendees can vote, on a one-person one-vote basis, impacts voting data.
A further consideration, to acknowledge Mr Dimon’s concerns, is that a number of AGMs are being disrupted by special interest activists. It might be argued that the actions of some activists drown out the regular business of the AGM.
These considerations do present some challenges to the role of the AGM and raise the question of whether it is just a compliance box that companies must ‘tick’ rather than serving a substantive governance purpose in those markets where attendance is declining. Yet even in the US and other markets facing such concerns, retail and institutional investors continue to express their view that they value AGMs as their primary opportunity to have contact with the board and management, and to hear them present the company’s position.
Why then are so few shareholders attending, across so many markets? To my mind, it suggests that the issue is not really whether AGMs are a waste of time, but instead a broader question of how to better deliver effective engagement through them.
The AGM of the future
The format and process of the AGM needs to be reimagined to accommodate the needs of shareholders and companies alike in an international, diverse and increasingly technologically savvy environment. Rethinking the AGM needs to particularly address accessibility to the meeting, as well as considering ways to update the format and content in a way that better engages shareholders in the business goals of the company. Regulators should also consider laws that facilitate innovative technological solutions to support the conduct of meetings and improve the overall shareholder voting process.
Traditional AGMs are held in a fixed physical location, which impacts shareholders’ ability to attend. Domestically, attendance can be hindered by extreme weather events, for example in Hong Kong, or the geographic scale of countries like the US or Australia. Also AGMs are often clustered together within a tight window in each market, sometimes with many on the same day, impacting the ability of investors to attend all their investee companies. Cross-border investment adds to this.
One clear solution to this is the application of advances in technology to the conduct of meetings. The emerging adoption of virtual (online only) and hybrid (online and in-person) meetings is a major step in improving the capacity for shareholders to participate without incurring the challenges of physical attendance. Properly deployed and controlled, technology can improve the interaction between companies and their shareholders at the meeting. Even where meetings continue to be well attended, the case for democratising access is worth consideration.
Companies are already increasingly making digital options available to shareholders. These include e-communications and electronic proxy voting, as well as the use of technology such as electronic ‘admission’ cards and in-room voting apps at the meeting. There is often an increase in voting when shareholders are provided with easy-to-use digital solutions.
Online meeting solutions are a logical next step in the deployment of technology for shareholders, addressing accessibility. The US has led adoption of virtual and hybrid meetings with a significant increase in usage in the past couple of years, although absolute numbers remain low for now. There is also growing interest from companies in many other international markets. Indeed, Computershare in Australia conducted its own AGM as a hybrid for the first time in 2017. The Australian Stock Exchange is currently consulting on revisions to its Corporate Governance Council’s Principles and Recommendations, including proposals that companies with large or geographically diverse investor bases consider use of technology, such as hybrid meetings, to facilitate shareholder participation in the AGM.
Despite broad recognition of the benefits of this advance, some investors have raised questions about the use of virtual-only meetings. Concerns have included losing the ability to ‘look the board in the eye’; a perceived risk that the company will be able to avoid ‘difficult’ questions; and some questions about stability of the technology in its early phases. Investor groups such as the Council of Institutional Investors (CII) in the US and proxy advisors including Institutional Shareholder Services (ISS) have indicated that, while they support the use of hybrid meetings, they recommend against virtual ones at present.
At least in the US, companies thus far have however exhibited a preference for virtual meetings. In addition to improving attendance, virtual meetings can reduce costs associated with holding an AGM. By contrast, hybrid meetings may increase meeting costs as both online and physical formats must be supported. As the technology improves and reduces costs, the question about at what point it is cost effective for more companies to use hybrid meetings will arise.
Criticism of companies that adopt virtual-only meetings is largely focused on brand-name companies and controversial meetings in the US. This should be contrasted with the low and declining attendance levels at the majority of US AGMs, including among institutional investors (despite the positions taken by CII, ISS and others). Companies with little to no investor attendance in prior years have seen increased shareholder participation through the virtual format.
The investor concerns do speak to the importance in using this technology in a way that preserves shareholders’ rights and their capacity to engage with the company, replicating the benefits of in-person attendance. Steps can be taken to establish effective meeting procedures that protect shareholder participation and ensure transparency in the conduct of the meeting.
Virtual and hybrid meetings offer great potential for democratising AGMs, significantly increasing the number of shareholders who have the opportunity to participate. However adoption is at an early stage. Companies and investors, and their respective service providers, should continue to work together to establish best governance practice for the conduct of the meeting. Regulatory input might also be appropriate if companies and investors cannot find sufficient common ground.
The following considerations offer guidelines to enhance shareholders’ experience at virtual and hybrid meetings. It is worth stressing that there is no ‘one size fits all’; just as with the physical AGM, each company should consider its needs, the profile of its investors and the nature of the business of the particular meeting.
1. Establish and communicate protocols for managing shareholder questions. Some methods to address investor concerns about the handling of the Q&A component of the virtual meeting include:
- use online tools to share all questions, along with the methodology applied, to the group and prioritise topics
- consider using an independent moderator for the Q&A, and
- commit to responding to any remaining unanswered questions online after the meeting, or explain why a question cannot be answered.
2. Use video. Many virtual and hybrid meetings use audio only. Video better replicates the valued ability to ‘see’ the board and management in action and may ease transitional discomfort with the online format. Cost remains a consideration for many companies however, and for smaller companies it may be disproportionate.
3. Establish fair and transparent protocols for handling shareholder proposals.
4. At hybrid meetings use poll voting only and not ‘show of hands’.
5. Test the technology. Ensure your service provider uses ‘best in class’ systems; some companies are trialling technology at their physical AGM, prior to adopting a virtual or hybrid format.
Companies also need to ensure that they have the legal authority to conduct a virtual or hybrid meeting. Table 2 shows the current position for a range of jurisdictions (see Table 2: Regulatory facilitation of virtual and hybrid meetings in international markets). In some cases, the law is not explicit and authority is subject to interpretation. In the UK for example, only one company has conducted a fully virtual meeting thus far (Jimmy Choo in 2016), with a number of others pursuing hybrid meetings. Questions regarding interpretation of the law for virtual meetings has caused companies to hold off for now and regulators should consider taking action to improve legal certainty in this area.
In addition, companies need to ensure that their Articles of Association, or other constitutive documents, and other relevant provisions such as stock exchange listing rules permit the meeting format.
Before moving on, we should acknowledge that other technologies are emerging and should also be monitored for their potential to improve the conduct of the AGM. The evolution of blockchain technology in particular, subject to much current discussion, may lead to additional mechanisms to facilitate participation in the AGM. The key principle regardless of platform is continuing to deploy improved technology to enhance the meeting experience. We may also eventually see technology drive changes in the rules surrounding meetings, for example it remains to be seen how the increase in electronic proxy voting combined with adoption of online meetings may impact voting deadlines.
Engaging investors’ interest at the AGM
Technology is one key mechanism to better engage shareholders and facilitate their participation in the AGM. Companies also need to consider the content of the meeting, and how to best adapt it to engage shareholders. Again, the right approach will be very specific to each company. Strategies can be developed to create an appealing meeting that goes beyond ‘compliance’ requirements by educating shareholders on, and indeed marketing, the company’s business(es).
For example, Wesfarmers in Australia has increased shareholder attendance through a format that engages shareholders in its various business lines alongside the official meeting. The meeting was also webcast, combining the use of technology with reimagined meeting content.
Rethinking the AGM
AGMs remain an important governance and engagement tool. Companies and shareholders need to consider how best to use the AGM to facilitate company–shareholder dialogue and deliver strong governance outcomes. Technological developments and innovative formats can improve access to, and conduct of the meeting, and effectively communicate companies’ business goals to shareholders. As technological developments continue and companies and shareholders become more familiar with non-physical formats, the question may well become whether physical-only meetings can still be considered best practice.
Senior Managing Director – Regulatory & Market Initiatives Global Capital Markets Computershare