Emergency measures need more thought for the long term, survey finds

The shift to virtual AGMs as a result of the coronavirus pandemic has harmed shareholder rights, according to an influential retail investor lobby group.

As lockdown restrictions in most European Union states prevented physical attendance at AGMs in 2020, governments relaxed rules to allow companies to hold virtual general meetings.

However, this has led to claims of some infringement to rights, according to a survey of shareholders in EU companies by Better Finance. The survey found shareholders have had mixed experiences during the coronavirus pandemic.

Survey respondents said some companies failed to provide the necessary technical infrastructure to accommodate all shareholder rights in good time, hampering constructive exchanges and their right to vote based on appropriate information.

In the worst cases, the process was held behind closed doors, with the exercise of voting rights only possible the day before meeting. In these cases, the companies just met the legal requirement to broadcast the closed-door meeting on the internet and not even in real time.

Guillaume Prache, managing director of Better Finance, said: “Whereas the emergency laws instated by member states in response to the health crisis have negatively impacted fundamental shareholders’ rights, this was presented as temporary in nature in response to an emergency.”

Respondents cited advantages and weaknesses for both traditional on-site AGMs and their virtual counterparts.

While shareholders said conventional on-site meetings were not easily accessible for non-residents, involved costs and were time-consuming, many felt they offered the opportunity for in-person direct interaction with both management and other shareholders.

These meetings also offer a degree of transparency and allow shareholders to ask questions to the board, which can be heard by the whole room.

On the other hand, some respondents said virtual-only meetings are not conducive to transparent and open discussion and in many ways reduce shareholder rights to speak and ask questions.

They do have some advantages though, as they can be accessed from anywhere in the world, have a lower environmental impact, are less costly and time-consuming for shareholders. They can also be recorded for future reference.

“Going forward, the format of the AGMs needs to return to one that acknowledges and ensures their deliberative function,” said Prache, “and which enables shareholders to exercise all of their rights regardless of their means of participation, including the rights to ask questions during AGMs and to vote after having heard the replies from the management and from the board.”

Better Finance suggests hybrid AGMs should be the preferred option. They combine the best of both approaches by incorporating the positive aspects of virtual and physical meetings and removing the barriers to exercising shareholder rights that exist in both models.

To do this, companies need to take a look at the lessons learned during the 2020 AGM season and address any weaknesses of the respective formats.

The survey revealed an overwhelming majority of both groups prefers to maintain on-site AGMs, but not necessarily coupled with virtual components. This means there is still much work to do on hybrid AGMs before they become a real game-changer.

A recent study by the Hebrew University of Jerusalem suggested that the overall time of virtual meetings is 18% shorter, with firms spending 29% less time is answering each question.

If virtual AGMs are to work in the future, companies will need to make sure that they fully embrace the change in technology so investors are still able to hold them to account as they would do at a traditional meeting.