If we take a helicopter view of the 2018 AGM season, most companies will conclude that it was “business as usual”. However, on scratching the surface, some interesting trends and observations are apparent. These are trends that companies should respond to and take into account, not only when preparing for the AGM, but also in the general management of the company. At a meeting at VP, Klaus Søgaard, partner and lawyer at Gorrissen Federspiel, presented his conclusions on the 2018 AGM season and predicted key challenges and trends in the years to come. Flemming Merring, Head of Issuer Services at VP, presented VP’s 2018 AGM analysis.

Several groups of AGM influencers

When planning their AGMs, companies should be prepared to handle proposals and contributions from several groups of shareholders. According to Klaus Søgaard, the most important are Danish institutional investors, foreign investors, private investors, the Danish Shareholders Association and political organisations. During the 2018 AGM season, however, the debate at AGMs was generally limited and the number of ballots was low – which among other things reflects few proposals from shareholders and a generally attractive climate for companies.

“Even though most AGMs went off peacefully, there was a noticeable change among the Danish institutional investors. For a number of years, ATP was virtually the only Danish institutional investor present at AGMs, but in 2018, a number of additional institutional investors were active – and both voted at and attended AGMs. This change in behaviour is a result of the implementation of new policies on active ownership, in accordance with the new stewardship codes. Previously, Danish institutional investors typically ’voted with their feet‘ and acted ’behind the scenes‘, but now more investors act directly at the AGMs – they are more visible and they actively promote their core investment principles. I believe this trend will continue to unfold, as a consequence of the new stewardship codes and also the growing pressure from pension fund members. It is a fact that some institutional investors are still more outspoken on specific topics, such as remuneration, diversity, over-boarding, capital increases and election of auditors. And in some cases, they decide to vote against the board’s proposals. In addition, investors demand more openness in general and also focus on ESG issues to an increasing extent. They raise critical issues at the AGM or in the media, if this is deemed necessary,” said Klaus Søgaard.

Proxy advisers play a greater role

Klaus Søgaard continued: “Foreign investors are also exerting active ownership to a greater extent and proxy advisers are playing a greater role. Institutional Shareholder Services (ISS) and Glass Lewis are still the most important proxy advisers, but we also more often see PIRC, while some of the very large foreign investors have individual guidelines. In some companies, the foreign shareholder ownership is so considerable that the proxy advisers de facto act like majority shareholders. This makes it worthwhile to be very well-informed on proxy advisers’ guidelines, to have a regular dialogue with the proxy advisers and to take their guidelines into consideration when preparing the proposals for the AGM, if the board wants foreign investors to vote for the proposals. Like it or not, proxy advisers have the deciding vote (on behalf of the end-shareholders) in a number of companies – and they have become more active and more professional.”

VP’s AGM analysis: More active institutional investors and intensified digitisation of the AGM process

Over the last four years, VP has gathered data from Danish AGMs to shed light on facts and development trends. Flemming Merring, Head of Issuer Services at VP, summarises the key take-aways from the 2018 AGM analysis as follows:

• For the second consecutive year, the number of registrations decreased in 2018, whereas the registered capital was stable at 50 per cent.
• The number of voting instructions from Danish investors continued to decrease in 2018, which indicates that Danish investors either attend the AGM to exercise their voting rights, or just stay away from the AGM. However, in 2018, a number of additional Danish institutional investors were active – and both voted at and attended AGMs.
• The number of voting instructions from foreign investors continued to increase in 2018. During the period from 2015 to 2018, the number of voting instructions increased by 54 per cent, with a stable foreign ownership share.
• 63 per cent of foreign voting instructions were approved by AGM chairmen in 2018, which is a small decline from the previous years. The main reason for not approving voting instructions is a lack of power of attorney.
• Digitisation of AGMs is gaining further momentum, with digital communication and electronic admission cards. The electronic admission card is a great success – accounting for 51 per cent of the total number of admission cards issued – and will account for an increasing ratio over the coming years.

The 2018 development is by and large a continuation of the trends observed in previous years.

Coming up – the revised Shareholder Rights Directive

Klaus Søgaard and Flemming Merring concluded the meeting with a brief update on the revised Shareholder Rights Directive.

The revised Shareholder Rights Directive was approved in April 2017 and will enter into force in 2019 and 2020, respectively. The Danish bill implementing the revised Directive is expected to be introduced at the beginning of 2019 and the new regulation will influence both the planning and the content of AGMs.

For the European Commission, the overall rationale behind the revised Directive is to achieve more long-term focus in corporate governance and to address shortcomings. The main shortcomings identified by the Commission are the following:

• Short-termism in the investment universe
• Insufficient oversight into directors’ pay
• Insufficient oversight of related party transactions
• Interaction between companies and shareholders is not effective or not possible in cross-border situations

The revised Directive includes new regulation covering these areas.

Both Klaus Søgaard and Flemming Merring noted that the Directive entails comprehensive cross-border challenges (the last item of the aforementioned bullet list) – especially with regard to technical solutions to handle shareholder identification and exercise shareholders’ rights. The new regulation will involve and have an impact on banks, intermediaries and companies across EU borders. For the time being, there are no specific plans to establish common EU systems and techniques to handle the upcoming challenges and it is doubtful whether a common solution can be achieved before the implementation deadline.

Be prepared for new challenges – and listen to your shareholders

Klaus Søgaard concluded: “Over the coming years companies will naturally have to adapt their AGMs to comply with the new regulatory demands following, among other things, the revised Shareholder Rights Directive. But they will also need to handle increased demands from their shareholders regarding, for example, greater openness in general, board composition, remuneration, diversity and corporate responsibility. I always advise companies to listen carefully to all group of shareholders – and to give respectful and satisfactory answers. I have noted that many companies do not necessarily prioritise and prepare themselves to answer questions from shareholders at AGMs. In my view, this is not a wise strategy, and Danish companies can certainly learn from companies abroad – the large companies typically have an army of people dedicated to preparing answers to questions from shareholders at the AGM.”

Presentation and audio cast from the meeting
AGM analysis