AGMs: Tactics for a Plague Year

In a time of crisis and confusion, shareholders are more eager than ever to get answers from their boards and management. Yet holding traditional AGMs is nearly impossible.

Postponing them may also not be a good option. Advisors, analysts, shareholders, investors, employees and all other stakeholders are all eager to understand their companies’ way forward in such troubled times, and the AGM offers the best way to address this. Postponing the AGM, even for good reasons, sends a bad signal to the markets at the very time when addressing investor and broader social concerns is critical.

For example, many companies are considering reducing dividends due to the challenging economic conditions, yet CEO pay reductions are not on the AGM agendas. CEO pay continues to rise, regardless of performance. The top 35 highest-paid CEOs on the S&P 500 received a combined Total Realized Compensation (TRC) of almost $3 billion in 2019, yet pay-for-performance alignment is badly skewed at nearly half of the companies on the index as our statistics show.

If postponing is not an option, companies do have two other options at their disposal: Running a ‘hybrid’ AGM, which would combine physical presence with virtual communications, or making the entire AGM virtual. Most companies don’t have such options included in their Articles of Association, but the first step at the hybrid or virtual AGM would mean voting on such changes. The London Stock Exchange is currently pushing for emergency legislation to change the companies act to allow all companies to stage virtual shareholder meetings. 

The hybrid option means that either board members are physically present at the AGM, while shareholders communicate with them via virtual links, or that shareholders send representatives to physically attend the meeting while board members communicate via video or audio communications. Voting ahead of meetings is also an option, working with proxy advisors.

Swedish telecoms and networking firm L.M. Ericsson has chosen the former hybrid option for its 2020 AGM on 31 March. The President and CEO Börje Ekholm will not attend in person, but will participate via links (it is not clear whether other board members will attend in person). A live webcast of the meeting will be available to shareholders.

To keep the numbers of attendees down, Euroclear Sweden will offer shareholders who are individuals the option to vote via proxy, and other opportunities to work with proxies are made available to shareholders. “No food or refreshments will be served,” the official invitation warns.

Ericsson’s official invitation offers links to Nomination Committee proposals as well as to some shareholder motions.

But, in this hybrid approach to the AGM, is it clear that board members will be able to fulfil their fiduciary responsibilities in communicating with shareholders? Will it be possible to hold a dynamic discussion of the company’s affairs? Will shareholders be able to work with proxy advisors on such short notice – how will policies be communicated? Will a shareholder wishing to pose a complex question to the CEO get sufficient airtime?

The alternative hybrid approach to running AGMs would mean that board members are physically present, while shareholders communicate with them entirely via audio, video and messaging. And there is the further alternative, in which all communication takes place virtually.

Each of these alternatives poses many of the same questions that we’ve raised above. One of the virtues of the physically-attended AGM is that a shareholder can follow up on questions, or insist on attention to specific subjects. Can shareholders be sure this will happen online?

The even larger question being asked at some companies will be whether all shareholders have had access to sufficient information to vote before the AGM. For example, under current conditions, it may not be possible for the audit of financial statements to be concluded. Some companies are opting to work with financial reporting that is incompletely audited. This poses a serious corporate governance challenge that the board would have to address at the AGM.

The diffusion of extensive financial and non-financial information to shareholders and their representatives ahead of the meeting is also critical for these virtual or semi-virtual AGMs to succeed. Given that shareholders must accept somewhat limited access to the board, they must be certain that all of the information relevant to decision-making on matters such as executive compensation, director election, Stock Purchase Plan has been provided in advance.

Boards that take all the necessary steps to ensure that shareholders have the information they need ahead of the AGMs will be fulfilling their fiduciary responsibilities to shareholders. At the same time, Shareholders will need to step up and leverage technology and information to support their engagement. The AGM will provide the basis for the company to move forward even in a Plague Year.