GC100 poll results
62 per cent of GC100 members participating in the poll indicated that their companies are planning to change their articles of association to permit virtual-only and/or hybrid general meetings. Of these companies, approximately one third proposed to permit hybrid meetings only. One quarter of participants no longer believed that a physical AGM format was still valuable. There was a mixed response when members were asked if virtual-only AGMs are the way forward: just over half of the respondents thought virtual-only AGMs may be a viable option in the future. 60 per cent of members indicated a current preference for hybrid meetings, as these provide greater flexibility and allow shareholders to participate in the way which best suits them.
The Investment Association’s position statement on virtual-only AGMs
In a position paper published in December 2017, the Investment Association (IA) confirmed that it is not supportive of virtual-only shareholder meetings – and will not support amendments to articles of association that allow for virtual-only AGMs. However, the IA is supportive of hybrid meetings. Notably, if a company amends its constitution to allow for virtual-only AGMs, the IA’s Institutional Voting Information Service will mark its colour-coded reports on the company with a ‘red top’, signifying that there is a significant area of concern for shareholders.
The Institutional Shareholder Services UK guidelines, published in January 2018, also support the adoption of new articles of association allowing for hybrid meetings, provided it is clear that there is no intention to hold virtual-only AGMs.
Advantages of virtual-only shareholder meetings
Virtual-only meetings may:
- Reduce the costs of travel for shareholders and organisation/venue hire for the company. Reports covering AGMs held in 2017 continue to show that there is generally a small turn-out at physical AGMs.
- Allow for online Q&A sessions, which may engage private and/or small shareholders more and streamline the question process. Virtual-only meetings may be more appropriate where the meeting only concerns routine matters.
- Cater for those unable to travel to the physical meeting venue, such as overseas investors or institutional investors with a large number of AGMs to attend over a short period of time.
Disadvantages of virtual-only shareholder meetings
Potential drawbacks of virtual-only meetings include the following:
- Although it seems clear that hybrid meetings are permissible, there remains some lingering uncertainty over the validity of a virtual-only shareholder meeting, given that there is no physical ‘place’ of meeting. However, the legal position has been significantly improved by article 8 of the Shareholder Rights Directive (2007/36/EC), which requires EU member states to permit companies to offer shareholders a form of participation in a general meeting by electronic means (implemented in the UK by section 360A of the Companies Act 2006).
- There may be administrative difficulties, particularly where there is a large register of members. The potential for technical issues is also an area for concern, particularly as reconvening the meeting could be costly and embarrassing, and give rise to a requirement for a physical AGM.
- The IA is concerned that physical meetings are the only time that the directors are obliged to be publicly accountable in person and may be the only opportunity to question the board directly on important topics. AGMs are often seen as a forum in which shareholders can raise any concerns publicly.
- The IA is also concerned that a virtual-only meeting makes it harder to identify the views of others and to register agreement or disagreement. Others have concerns that the chair may have less control over a virtual meeting if shareholders are more willing to ask questions (and follow-up questions), which may be difficult to manage virtually.
- IA members believe attendance of the board at AGMs demonstrates a commitment to understanding shareholders’ views. Virtual-only AGMs risk giving the impression that the board wishes to filter or exclude shareholder questions.
Preparation for future and U.S. practice
Virtual AGMs remain uncommon in Europe; however, U.S. public companies increasingly allow AGM participants to attend and vote remotely. For example, Ford, Duke Energy, PayPal and HP Inc. hold virtual-only AGMs and the number of U.S. companies hosting virtual-only shareholder meetings rather than face-to-face events increased almost 40 per cent in the United States last year.
As virtual meetings become more prevalent, best practices are emerging. For example, at its 2017 AGM, HP Inc. posted all unedited shareholder questions that it received before and during the meeting on its website. To increase transparency, HP Inc. also broadcast a live video rather than the audio-only format previously favoured by companies conducting virtual meetings.
To date, only one listed UK company appears to have held a virtual-only AGM. However, it is likely that we will see companies amending their articles of association to cater for hybrid shareholder meetings, even if there is no current intention to enable electronic participation. In the future, we may see companies adopting a staged approach by holding hybrid AGMs and – if institutional investor representative bodies change their views – moving to virtual-only meetings at a later stage.
Client Alert 2018-125
