The Companies (Miscellaneous Provisions) (COVID-19) Act 2020(The 2020 Act) has made virtual AGMS legal. Virtual AGMs (V-AGM) are where no physical meeting take places.
The Annual General Meeting (AGM) of a company is a legally required meeting of the shareholders where certain statutory annual business is undertaken e.g. approving the accounts and dividend, and other changes require shareholder approval under company law e.g. changing the company constitution. Apart from the technical aspects of the AGM, the AGM is also a key connection point between shareholders and management, and for smaller shareholders the AGM is often the only opportunity to put questions to the Board and Management.
This year there was a mass migration to the V-AGM due to the COVID restrictions, and the Act was emergency legislation required due to at least one legal challenge to attempts to restrict physical attendance at AGMs (Carolan, 2020). This year AIB, Dalata, and Ryanair all held V-AGMs.
And as we have all discovered this year, there are many advantages to the virtual meeting, which also apply to the V-AGM. Attendances at V-AGMs are higher, engagement greater, they cost less, and reducing travelling also makes then greener (Gao, Huang, & Zhang, 2020). Institutional shareholders have also reported that they were able to attend more AGMs this year virtually, a number impossible in a physical only world (Trentman, 2020). And with up to three times the level of attendance, the level of engagement also increased, with attendees staying longer, voting more often and asking more questions (Flynn, 2020).
Virtual AGMS are not new
It is also important to remember that V-AGMs are not new. Delaware was the first US state to enable V-AGMs in 2000, quickly followed by many others. Jimmy Choo, the luxury footwear company, became the first London-listed company to hold a completely virtual AGM in 2015. Although the numbers of V-AGMs have been increasing, it has never going mainstream, until the pandemic.
The Downside to Virtual
However, Mr. Chadwick raised a number of concerns in his April case against Grafton who, pre the Act, were going to hold their AGM virtually with just a few invited shareholders in physical attendance (Carolan, 2020). He argued that it would be “stalinesque”, designed for “company insiders”, and a “parody” of shareholders rights. Strong sentiments. The court did not rule on any of these issues, acknowledging that the pandemic created a unique situation, but the issues raised are worthy of consideration.
Companies, board and management who seek to isolate themselves from scrutiny may benefit from the absence of a face-to-face meeting. Early comparative research indicates that virtual meetings are shorter, by 18%, with less time spent answering questions, almost 30% less (Schwartz-Ziv, 2020). Several tactics were also employed to avoid addressing questions submitted in advance, including saying that none were submitted. These obstacles to shareholder voice were not isolated, shareholders in almost half of the firms in the study, faced obstacles when submitting questions (Schwartz-Ziv, 2020).
The V-AGM is certainly less intimidating for the company. The online question and answer structure does not capture the pulse of the crowd, facilitate a proper “grilling” of the board and management, and inevitable dampens shareholder dissent where shareholders are dispersed into multiple locations. Underperforming companies, their management and boards can more easily avoid the angry shareholder revolt building up steam during the course of a staid presentation of the annual report. The Boards of the bust banks of 2009 would certainly have avoided the thrown eggs and shoes if their AGMs were virtual (Wearden, 2009)!
Is the V-AGM a COVID novelty?
For a successful transition to V-AGM shareholders rights must be actively protected, with the level of interaction between management and shareholders maintained. Two key issues must be addressed, shareholder voting, and the face-to-face accountability offered by the physical meeting (Boros, 2003). Technology is constantly improving, which may address the voting and some shareholder engagement concerns. Firms seeking to adopt leading governance practices may believe that the improved ease of access justifies the virtual approach (Josephy & Josephy, 2018), and there is evidence of a correlation between good governance and virtual meetings (Gao, Huang, & Zhang, 2020).
However, even with the best technology, management can still choose to avoid difficult questions (Schwartz-Ziv, 2020). And there are limits to accountability without face-to-face meetings.
The 2020 Act does includes some protections for shareholder participation, such as ensuring that the technology ensures the chairperson and any person addressing the meeting can be heard, and opportunities to speak and submit questions and comments during the meeting.
However, to support widespread adoption of V-AGMs, greater legal and regulatory guidelines are required to reduce reliance on the board’s willingness to adopt effective technology and ensure mechanisms to support active engagement with shareholders before and during V-AGMs.
Due to these concerns, it is reassuring that the legality of the V- AGM in Ireland is limited to 2020. This will give directors and shareholders the opportunity to review the “experiment” to determine if totally virtual AGMs are to be retained. However, shareholders take note, management may also take the opportunity at this year’s legally allowed virtual AGM to amend the company constitution to allow for V-AGMs in the future.
REFERENCES
Abdennadher, S., & Cheffi, W. (2020). The effectiveness of e-corporate governance: an exploratory study of internet voting at shareholders’ annual meetings in France. Corporate Governance: The International Journal of Business in Society.
Boros, E. (2003). Corporate Governance in Cyberspace: Who Stands to Gain What from the Virtual Meeting?. Journal of Corporate Law Studies, 3(1), 149-179.
Carolan, M (2020, April 24.). Former Grafton Group Chairman Challenges Closed AGM Plan. Irish Times. Retrieved Oct 2nd, 2020 from https://www.irishtimes.com/business/retail-and-services/former-grafton-group-chairman-challenges-closed-agm-plan-1.4236940
Cunningham, L. A., & Cuba, S. (2018). Annual Shareholder Meetings: From Populist to Virtual. Financial History, (127), 14-19.
Flynn, D. (2020, Sept 24). Virtual AGMs bringing increased engagement. Retrieved October 2nd, 2020 from https://www.corporatesecretary.com/articles/technology-social-media/32270/opinion-virtual-agms-bringing-increased-engagement
Gao, H., Huang, J., & Zhang, T. (2020). Can online annual general meetings increase shareholders’ participation in corporate governance?. Financial Management.
Josefy, M., & Josefy, A. B. (2018). Opening up the Gates or Building Virtual Fences? The Conflicting Rationales Leading to Adoption of Virtual Shareholder Meetings. Academy of Management Global Proceedings, (2018), 25.
Nili, Y., & Shaner, M. W. (2020, August). Back to the Future? Reclaiming Shareholder Democracy Through Virtual Annual Meetings. In Reclaiming Shareholder Democracy Through Virtual Annual Meetings (August 26, 2020). Univ. of Wisconsin Legal Studies Research Paper (No. 1606).
Schwartz-Ziv, M. (2020). How Shifting from In-Person to Virtual Shareholder Meetings Affects Shareholders’ Voice. Available at SSRN 3674998
Trentman, Nina (2020). Shareholders Feel Muted as Companies Switch to Virtual Annual Meetings. Wall Street Journal. Retrieved on 1st October 2020 from https://www.wsj.com/articles/shareholders-feel-muted-as-companies-switch-to-virtual-annual-meetings-11598187600
Van der Krans, A. (2007). The virtual shareholders meeting: How to make it work. J. Int’l Com. L. & Tech., 2, 32.
Wearden, G (2009, May 20). When shareholders attack: Eggs and shoes fly as AGMs turn violent. The Guaridan. Retreived on October 1st 2020 from https://www.theguardian.com/business/gallery/2009/may/15/shareholders-revolt
Corporate Governance 