Be well-prepared for the coming annual general meeting season
The experienced annual general meeting participants, Klaus Søgaard, partner and lawyer at Gorrissen Federspiel, Claus Wiinblad, senior vice president at ATP, and Leonhardt Pihl, CEO at the Danish Shareholders Association present their conclusions on the 2017 AGM season and gaze into the crystal ball to predict key trends in the year to come.
Danish listed companies are performing well leading to a general increase in share prices – naturally dampening critical voices at the annual general meetings and making the annual shareholder event a walk in the park for a majority of company boards. Nevertheless, according to the experienced annual general meeting participants, Klaus Søgaard, partner and lawyer at Gorrissen Federspiel, Claus Wiinblad, senior vice president at ATP, and Leonhardt Pihl, CEO at the Danish Shareholders Association it is not time for companies to rest on their laurels, but to be well-prepared to match their shareholders’ agenda. Below they present their conclusions on the 2017 AGM season and gaze into the crystal ball to predict key trends in the year to come.
Klaus Søgaard chairs the annual general meeting at a number of listed companies and summarises the key takeaways from the 2017 AGM season as follows:
- The number of attendees at the AGMs continues to decrease, whereas the number of voting instructions continues to increase
- Foreign investors are continuing to increase their influence
- Digitisation of the AGM is gaining further momentum
He also notices that the only large institutional investor attending and speaking at the AGMs is normally ATP, while the private investor segment’s interests are represented by an active Danish Shareholders Association.
The main themes at the 2017 AGMs were:
- Management and Board remuneration
- New demands regarding election of auditors and the independent auditor’s report
- Electronic admission cards and companies’ collection of e-mail addresses
- Shareholder communication in English
“The atmosphere at the 2017 AGMs reflected that companies in general are generating large profits and delivering attractive returns to their shareholders. Obviously, you can hardly be a very critical shareholder in this situation. That being said, we take an individual view of the single company in our portfolio and focus especially on governance, performance, strategy, capital structure and ESG issues – according to our policies, guidelines and views within these areas. Our comments at the AGMs are based on this assessment. In 2017, our comments were mainly supportive and positive – but there were also exceptions and we encourage portfolio companies to be awake and keep on striving to do their best to navigate in an increasingly complex business environment and to communicate in a transparent and compliant way”, says Claus Wiinblad.
New regulation implies changes at the coming AGM
A wide range of regulation is setting the scene for AGMs. Various pieces of new regulation got implemented in recent years, but there is more to come.
“Recently, a new stewardship code for institutional investors, a new Prospectus Regulation and new regulation on the report from the independent auditor came into force – each impacting the framework for AGMs. In the coming period the implementation of the Shareholder Rights Directive and revised recommendations on corporate governance will further add some changes”, says Klaus Søgaard.
Klaus Søgaard advises companies to consider the implications of recent regulation when planning their 2018 AGM. The changes will imply new demands regarding the content of the chairman’s report (mentioning of remuneration report and remuneration policy, the board’s self-evaluation, composition of board of directors, including “over boarding”, and policy on diversity), approval of the annual report and authorisation to increase the share capital.
”At the Danish Shareholders Association we are very happy that the wide range of new initiatives is working in the private shareholders’ favour. Shareholders will obtain further rights and a more formally defined framework for exercising active ownership. We will dedicatedly work to take advantage of new possibilities to support private investors’ interests”, says Leonhardt Pihl.
What will be in focus in 2018?
Both ATP and the Danish Shareholders Association aim to engage in active and constructive dialogue with companies – and to raise critical issues if deemed necessary. They have both started the preparations for the 2018 AGM season.
“During the 2017 annual general meeting season remuneration was the dominating theme for us and we also expect this to be top of mind in 2018. Therefore, it is important that companies are aware of recommendations and best practice if they want to avoid criticism and rejection of proposals in case of votes. In addition to the key AGM issues mentioned above, climate change issues and how companies handle these issues are also becoming increasingly important to us. We are having more and more dialogues with companies on this topic, including how they report about it”, says Claus Wiinblad.
“Right now our team of 25-30 persons dedicated to participating at AGMs are preparing for the 2018 AGM season. In 2018, I expect the Danish Shareholders Association will continue to focus on remuneration. In general, we are concerned, if bonus programs are too short-term and not sufficiently focussed on long-term value creation. We are excited to experience how the “say-on-pay” principle included in the Shareholder Rights Directive will be implemented in Danish regulation. Furthermore, we have intensified our focus on risk management. I admit that describing company risks and the potential effect of these risks is quite a tough discipline but there is room for improvement within this area in many companies. We will keep on asking critical questions and to challenge companies as the companies’ approach to and awareness of risks is very important seen from our perspective. The new section “Key audit matters” in the independent auditor’s report also attracts our attention – this section is very interesting and I am sure the content of it will cause many questions. Finally, we will be aware of occasions where related parties are involved in company transactions and decisions – we are very keen to get a clear picture of where values are moving and to make sure that shareholders’ values are handled properly”, says Leonhardt Pihl.
He continues: “With regard to AGM practicalities it is worrying that companies only have e-mail addresses of a relatively small part of their shareholders. It is important that companies communicate directly with their shareholders and strive to activate their shareholders – and we will chase companies on this matter and ask them to intensify their efforts to collect e-mail addresses. On a final note, I remind all listed companies that Danish private shareholders appreciate communication in Danish, and we encourage companies to publish important information in Danish – if not the full annual report, quarterly report or other pieces of important information, then a summary.
Klaus Søgaard concludes: ”The above description of AGM issues – both from a legal and communication perspective – illustrates quite clear that there are a lot of details to cope with when planning the AGM. But aside from compliance with best practice and regulation I recommend companies to consider what they want to achieve at the AGM – and to plan the AGM in accordance with these considerations. Also when planning how to use new technologies.”
The presentation and the audio cast from the breakfast meeting is available below.