Gabriele Limonta, Sales Manager, North Asia at Lumi Global, argues that the format for annual general meetings (AGMs) is changing, and while virtual meeting technology is fit for purpose, regulatory requirements have largely failed to keep pace with rapid digitalisation.
Over the course of 18 months, listed companies across the world have been presented with unprecedented challenges to their modes of operation because of the pandemic. Corporate governance has been tested and shareholder meetings have been profoundly impacted. While the pandemic brought up new issues for businesses, Covid-19 highlighted what many experts already knew to be true – that the format for AGMs is changing and that regulatory requirements in this area have largely failed to keep pace with rapid digitalisation.
As the pandemic spread and restrictions on in-person gatherings became more severe, running a physical AGM became not only irresponsible but, in many places, illegal. As a result, many companies looked to regulators and government for guidance and to alleviate the pressure presented by antiquated articles of association and ordinances.
We have seen great variance between the global regions, as guidance has fluctuated enormously depending broadly on custom and regulatory lethargy. This has created a profound dichotomy between areas with reactive regulators and those with unresponsive ones. In the former, AGM innovation and digitalisation has flourished, meanwhile the latter have been anchored to old and archaic rules.
The US and Canada
The most dramatic change in the format of the AGM was witnessed in the US and Canada where most listed organisations held a virtual AGM in 2020. This trend extended out into the non-listed sector, with associations, professional bodies, trade unions and other membership groups also taking their meetings entirely online. In May 2020, Institutional Shareholder Services (ISS) stated that only 10 AGMs in the whole of North America had been cancelled. The success of minimal cancellations has been attributed to the swift action of the Securities and Exchange Commission, which issued guidance in early March to provide issuers with the necessary reassurance and flexibility to hold online meetings.
Conversely, Europe saw a huge mix of regulatory responses. In France for instance, the French Financial Markets Authority (AMF) issued recommendations regarding AGMs, encouraging shareholders to vote remotely, either by proxy or using an online platform if provided for by the issuer’s articles of association. Such recommendations did not go far enough to reconcile shareholders’ rights to attend an AGM, meaning shareholders have largely been excluded from AGMs this year with most meetings held behind closed doors.
In Germany and Austria, dates were extended to give issuers more time to hold their meetings. Legislation was passed in Germany on 27 March to allow virtual meetings, and Bayer became the first Dax-listed company to do so. In Switzerland, FINMA (The Swiss Financial Market Supervisory Authority) announced it wouldn’t allow extensions to convening AGMs beyond the traditional 30 June deadline, but did permit virtual meetings to take place, albeit with very little uptake from issuers.
Lastly, in the UK, guidance around AGMs was slow to be published. On 17 March, UK regulators endorsed hybrid meetings but stopped short of allowing virtual AGMs, warning that they ‘may not constitute valid meetings’. Alok Sharma, former Business Secretary, later announced measures to give companies greater flexibility, including postponing, or holding the AGM online or by phone using only proxy voting. The Financial Reporting Council, together with the Department for Business, Energy and Industrial Strategy (BEIS), published a Q&A document which many companies interpreted to mean that a behind-closed-doors AGM was permissible, providing a quorum was reached.
Despite the lack of clear guidance from BEIS, some organisations took the opportunity to conduct their AGM in a new way. Marks and Spencer (M&S)switched from a successful hybrid AGM in 2019 to a fully virtual meeting, which was well attended by shareholders. Archie Norman, Chairman of M&S was quoted in the Financial Times as saying the AGM reflected the company’s determination to become a digital-first business. ‘The crisis has shown us how we can drive this part of our transformation faster,’ he said. Outside the listed market, large membership organisations with a constitutional obligation to hold an annual meeting of their members embraced the opportunity to extend their governance reach.
The United Arab Emirates
Moving East, in the United Arab Emirates the local Securities and Commodities Authority (SCA) acted decisively to ensure that companies could fulfil their obligations to hold their AGM and to ensure good corporate governance was maintained. Their speed of response in removing the obstacle of legal uncertainty sets a great example to other markets, where a virtual AGM is the best method to preserve the right of shareholders to hold the board to account if they are unable to attend in person. The SCA supported the launch of an online portal, which facilitated registration and acted as a gateway to the live meeting. Shareholders joined the meeting virtually, and watched and heard the proceedings while being able to ask questions and vote.
Swift regulatory development in the APAC regions was quite significant and, in many cases, an excellent example of good governance. In Malaysia, Singapore and Australia, regulatory guidance and temporary legislation permitting virtual attendance at an AGM was issued expeditiously and clearly, providing companies with the confidence needed to reorganise their meetings into a virtual or hybrid format.
Specifically, Malaysia and Australia issued ‘no action policies’ whereby companies could leverage technology to aid the delivery of an AGM in a hybrid or virtual format, notwithstanding their articles of associations. In similar fashion, in Singapore temporary legislation was introduced which effectively banned physical AGMs, and permitted virtual AGMs, but with no voting in absentia during the meeting. Absentee voting through the Chair was allowed, and questions were also allowed to be submitted in advance.
Whilst Hong Kong regulators were quick to release guidance in mid-March permitting companies some flexibility to alter the format of their meetings, they also underlined that ‘issuers should ensure the conduct of its shareholder meetings are in compliance with the company laws and its own articles of association, where applicable’. With many companies yet to amend their articles of association to permit remote meetings and to allow voting in absentia, most issuers were forced to hold physical meetings with restricted attendance. Some did provide a simple webcast of the proceedings for shareholders, but attendees were unable to ask questions or cast their votes in a live environment.
The result of this policy disparity was that more than 1,000 virtual or hybrid AGMs were held in Malaysia, Singapore and Australia, while Hong Kong only hosted a handful.
Overall, the regulatory guidance issued in 2020, even for the most conservative regions, helped build momentum for lobbyists encouraging companies to promote large shareholder participation with virtual technologies. Increasingly, pressure is mounting on regulators to build a legal and regulatory framework that is robust, and to define best practice for organisations to be held accountable to in a hybrid or virtual meeting format.
From conversations with listed companies and our partners in the region, it is clear that many more organisations will hold a hybrid or virtual AGM in the future. In a survey conducted by Proxy Insight, over 80% of governance professionals expect AGMs to move to hybrid or even pure virtual models, assuming that shareholder rights are protected. For governance professionals and boards looking to drive through a digitalisation agenda, the backdrop of the global pandemic has certainly enabled change and accelerated an already growing appetite for going digital.
The confidence shown by governance professionals is supported by the technological reliability of hybrid and virtual AGM platforms which were used in thousands of meetings in 2020 alone. Over the course of that year, over 85% of Lumi meetings were totally virtual, with the remaining 15% choosing to conduct a hybrid meeting. The technology to facilitate this type of AGMs has been around for several years. By the time 2020 arrived, Lumi had already run hundreds of virtual and hybrid AGMs and with 2020 that number skyrocketed to almost 4,000. The technology has authenticated tens of thousands of shareholders, has accurately counted millions of votes and has handled thousands of questions put to hundreds of boards. It should now be clear to regulators, and detractors of the format, that virtual meeting technology is robust enough to support complex organisations worldwide, and accessible enough to support thousands of shareholders and facilitate transparency in ways that enhance corporate governance.
Shareholder engagement and representation, inclusivity and transparency are compelling reasons for the advancement of hybrid AGMs as the new normal, even without factoring in the additional environmental drivers. The key is to ensure that in the short term, legal constraints are removed to prevent a repeat of behind-closed-doors meetings. Then jurisdictions around the world need to build a legal and regulatory framework that is robust, and to define best practice for organisations, institutional investors and retail shareholders to be held accountable to. While Covid-19 may have been an immediate, short-term reason to utilise virtual meeting technology, it is clear that there is only one direction of travel – the future AGM is going to be increasingly digital.
Gabriele Limonta, Sales Manager, North Asia
Lumi Global runs virtual AGM meetings in more than 28 countries globally.