Until the 2020 AGM season, only relatively few Danish companies chose the virtual or partly virtual AGM format, but after the Covid-19 situation made it impossible to hold larger in-person gatherings, many companies tested various different virtual formats. Everyone hoped that the Covid-19 restrictions would be temporary, but it now seems likely that we will be living with restrictions on public gatherings at least into the next AGM season. Companies must therefore be prepared to move away from the traditional AGM format that has been in place for many years and embrace change for the immediate future, when it will probably be a necessity, and also in the longer term. Companies now have an obvious opportunity to consider how they can improve the AGM format and take different approaches on board, with a view to encouraging more engagement from all shareholders, including those who are unable to attend physical meetings due to their location or for other reasons.

“There is every indication that the planning of the 2021 AGMs will be an equation with several unknowns – making the planning process more complex than usual and raising many questions. Companies encounter new demands from shareholders concerning virtual participation and also uncertainty regarding the Covid-19 restrictions that may be in force during the 2021 AGM season. We therefore advise companies to prepare for at least a partly virtual format in 2021 and to ensure flexibility in general. The Danish government has already proposed an amendment to the Companies Act to enable the government to lay down rules giving a company's management the option, without authority under the company's articles of association, to hold a fully virtual general meeting in 2021,” says Flemming Merring, Head of Issuer Services at VP Securities.

Below, Niels Kornerup, partner at law firm Bech Bruun and chairman of many AGMs, and Mikael Bak, CEO of the Danish Shareholders Association, present their views on important AGM issues – in particular the choice of format of the coming AGM.

NIELS KORNERUP:

What key considerations should companies make when preparing for their upcoming general meeting?

The choice of format will be the big issue for virtually all companies, as we are living in a changing world due to Covid-19. Hence, we do not yet know what the framework will be for the AGMs in 2021.

Due to the Covid-19 restrictions, the AGMs in 2020 were a motley mix. Some companies held “normal” AGMs, which they requested shareholders not to attend, and some chose a webcast format without the opportunity for shareholders to speak and vote. Only relatively few chose the partly or fully virtual AGM format. There are many indications that companies will also choose different formats in 2021.

Currently, no more than 500 people may gather for large events in Denmark, and general meetings are covered by this, provided that the participants are seated and other restrictions are complied with. This framework allows most companies to hold a “normal” AGM, but all things being equal, gathering so many people might not be considered appropriate. Furthermore, there is also a risk that the current limits concerning public gatherings will be changed before we reach the 2021 AGM. Companies thus need to be prepared for the unexpected and for potential changes in the rules – and perhaps with no prior notice. We therefore recommend that companies consider their options to use different virtual formats and to take a flexible approach.

In addition, companies are advised to prepare the necessary amendments to their articles of association so as to provide the option to hold fully virtual AGMs going forward; to consider how to inform their shareholders in the best possible way about the special conditions concerning AGMs; and finally, to consider how to prepare and present the remuneration report at the AGM in line with the new requirements in the Danish Companies Act.

How do you advise companies regarding the choice of general meeting format?

Ideally, it would be natural for many companies to choose a partly virtual AGM in 2021, but it is my impression that many will wait and see. This is partly due to the fact that many companies find it challenging to cope with the technical set-up, not least the current transmission delay. This presents a challenge when some shareholders attend physically and others participate virtually, especially if there are many interactions at the AGM. In all circumstances, this format makes new demands of the management and the conduct of the AGM, since the AGM runs on two parallel tracks at the same time. That being said, the partly virtual format supports the exercising of shareholder democracy as it offers all shareholders the opportunity to debate and vote, irrespective of their location and preferences in relation to physical/virtual attendance.

With regard to fully virtual general meetings, I think many companies consider it too early to choose this format, even though a technical solution is offered. The fully virtual general meeting proved to work well for a few companies and pension funds during the 2020 AGM season. If further restrictions on gatherings during the 2021 AGM season are implemented, it will naturally be relevant for more companies to take the step towards holding a fully virtual AGM meeting – and not just opt for the webcast format with no shareholder interaction that many companies chose as an emergency solution during the 2020 AGM season.

Based on these viewpoints, I believe that many companies will choose the usual format for their AGMs in 2021, in the form of a physical meeting, if gatherings of more than relatively few persons are permitted at that time. In addition, companies are to a greater extent expected to expand this format with various virtual functionalities, e.g. by broadcasting live via webcast and by offering the opportunity to ask questions in writing. This format naturally imposes certain limits on the exercising of shareholder democracy, while the webcast format does not offer any opportunity for online voting at the general meeting after hearing the management's presentation and/or a debate. But in many cases, this will be perceived as the art of the possible – knowing full well that this is the first phase of the transition towards more virtual formats.

For your information, Bech-Bruun will host a webinar on 19 January 2021, at 9:00 am. The title is: “The 2021 AGM season – challenges and opportunities”.

MIKAEL BAK:

What experience do you bring with you from the 2020 AGM season, and which AGM format would you prefer going forward?

When the Covid-19 situation became an issue in connection with the holding of AGMs in 2020, we announced to companies that, in this very special situation, we supported the virtual format. We also encouraged companies to consider holding an open-house event for their shareholders in the autumn of 2020, to provide information about the company’s development and give shareholders the opportunity to meet the management – in the hope that the Covid-19 situation would be under control at that time. Unfortunately, this did not turn out to be the case.

The Danish Shareholders Association is probably the AGM stakeholder that has participated in most virtual AGMs in 2020. We have listened to a lot, and we have sent speech notes with questions to more than 35 AGMs. At many companies, the chairperson chose to read out our contributions and questions, and the management answered, but unfortunately, we have also seen examples where the company did not even acknowledge or present our contribution at the general meeting. We consider this to be a problem, since it is vital that shareholders have the opportunity to speak at the general meeting – irrespective of the format of the AGM.

With regard to the general meetings in 2021, we naturally understand that companies must act responsibly during this very special period. But notwithstanding the conditions that may apply in 2021, it is important that companies consider how to support shareholder democracy in the best possible way. Going forward, we clearly prefer companies to keep to the physical AGM format when the Covid-19 restrictions have been lifted, and to supplement this with the opportunity to participate virtually.

Equal treatment of shareholders might be an issue if there are still Covid-19 restrictions during the 2021 AGM season – is it Acceptable that some shareholders, e.g. proposers, may have the opportunity to attend the AGM in person, while others are requested not to attend?

We clearly prefer equal treatment of all shareholders, but allowing proposers to attend in person might be an option. But we would be concerned if this entails that a few shareholders take both the company and the majority of shareholders as "hostages", with long and very specific contributions. In this context, it is important that the chairperson runs the AGM effectively.

At the same time, and looking forward, there may also be a need to strengthen legislation to ensure that general meetings are conducted on a constructive basis – and in a way which ensures that contributions from shareholders are handled in an appropriate way, while making sure that this does not end up in a form from which neither the companies nor the majority of the shareholders benefit. I admit that this might be a delicate balance, but at the Danish Shareholders Association the development of shareholder democracy is one of our key priorities – and we aim to have an active dialogue with both companies and chairpersons.

Furthermore, we continuously seek to cooperate with key stakeholders which have an interest in ensuring that shareholder democracy, i.e. the interaction between companies, investors and society, is developing in a healthy direction for all parties involved.

List of issues that companies should consider when planning their 2021 AGM:

• Articles of association
• Choice of format
• Notice convening the AGM
• Regulatory changes as a consequence of SRD II

ARTICLES OF ASSOCIATION
Check the articles of association

•  First of all, companies should check their existing articles of association and assess their options concerning the format of the general meeting.
• According to the Danish Companies Act, the Board of Directors can decide to hold a partly virtual AGM (since this does not affect shareholders’ rights) unless provided otherwise in the articles of association. Nevertheless, many companies are amending their articles of association to specifically include the opportunity to hold partly virtual AGMs. If a company wants to hold fully virtual AGMs, this must be approved by the AGM.

Presentation of amendments

• Some companies have already made amendments to their articles of association to allow for greater flexibility regarding AGM formats, including holding partly or fully virtual AGMs. To ensure flexibility going forward, VP advises companies that have not yet made these amendments to present such proposals at the coming AGM.

Be aware of proxy advisers’ and shareholders’ stance

• Particularly in relation to companies with scattered or significant foreign ownership, it is important to note that proxy advisers are typically critical of the transition to a fully virtual AGM. The general starting point is that proxy advisers do not support proposals which allow for virtual-only general meetings to be convened, while they do generally support amendments to the articles of association that allow for partly virtual general meetings. Their policies were formulated in a pre-Covid-19 world, however, and during the Covid-19 pandemic proxy advisers have generally accepted a temporary relaxation, as long as companies included an explanation for their choice of AGM format and managed to ensure sufficient interaction with shareholders. The key proxy advisers’ policy guidelines for 2021 have not yet been published.
• VP advises companies to engage in constructive dialogue with relevant shareholders and proxy advisers, and to check key proxy advisers’ policy guidelines, in order to achieve a formulation of amendments to the articles of association which offer sufficient reassurance that all shareholders will continue to have the opportunity to effectively engage in meetings. Alternatively, restricting amendments to articles of association to authorise only partly virtual meetings is likely to garner support.

New temporary regulation

•  In mid-November 2020, the Danish government proposed an amendment to the Companies Act in order to extend the authority granted earlier in 2020 to deviate from provisions in companies' articles of association requiring that general meetings must be held as physical meetings. The bill gives the government the opportunity to lay down rules giving a company's management the option, without authority under the company's articles of association, to hold a fully virtual general meeting. This is an option that the management of the individual company may use if it considers that – due to the Covid-19 restrictions – it is impossible or difficult to hold a physical general meeting. According to the bill, the new authorisation will apply until 31 December 2021. 

CHOICE OF FORMAT
Shareholders’ expectations have changed

• It is expected that the trend towards virtual AGMs will continue and even accelerate. Companies and many shareholders have become more accustomed to digital communication during, and also before, the Covid-19 situation, and shareholders will expect or even demand virtual formats going forward – making it easier for everyone to participate, irrespective of geography, and also making it easier to exercise shareholder rights.
• For many companies and shareholders, it is probably too early for the fully virtual AGM, but more and more shareholders seem to be prepared for the partly virtual AGM, as a combination of a physical and virtual AGM.

Which format suits best?

• When organising and considering the format of their 2021 and future AGMs, companies should consider carefully which format best suits each entity and its specific circumstances, including the size of the company and the structure of the shareholder base. One size does not fit all companies and shareholders – for some companies, the best solution might be a fully virtual meeting, for others a partly virtual meeting, while others may decide that a traditional physical-only meeting is the most effective form of engagement.
• In addition to the issues relating to good governance, companies should also consider issues such as costs for both the company and its shareholders, the time spent and the environmental impact.

VP provides a well-functioning solution for the virtual or partly virtual AGM

•  VP has developed a well-functioning solution that can facilitate both the fully and the partly virtual AGM – and ensure that it is easy for shareholders to engage and exercise their shareholder rights online.
• Some pension funds and mutual funds used this platform during the 2020 AGM season and all parties involved, including chairpersons, company managements and VP, gained valuable experience with the virtual set-ups – and how to prepare for and run the AGMs in the best possible way.
• Via the platform it is possible to:
  
  
  • Participate via PC, tablet or business phone, typically by using NemID
  • Vote online
  • Ask questions via the messaging feature, either by email or online
  • Present shareholder proposals online at the AGM by setting up a telephone conference or a Teams meeting, as well as by transmitting a pre-produced video. It is also possible to ask the chairperson to present the proposal.
  • Comment online or via the messaging feature
  • Send information from the company to participants during the AGM
• Before the AGM, the data relating to shareholder rights, including votes, is uploaded to the platform.
• Just before the beginning of the AGM, VP sets up a hotline to guide shareholders with questions or problems concerning their online participation.

NOTICE CONVENING THE AGM
Uncertainty requires a flexible approach

• During the 2020 AGM season, most companies requested shareholders not to attend the AGM in person, in order to comply with the instructions and precautions taken by the Danish authorities regarding the Covid-19 situation. Companies also encouraged shareholders to vote in advance and to attend the meeting via the virtual solution chosen by the individual company.
• At present, we do not know how the Covid-19 situation will affect the 2021 AGM season. This means that companies will need to take a flexible approach when preparing the specific wording of the notice convening the AGM in 2021. Companies will have to prepare for different scenarios and consider the opportunities available under the potential temporary rules. Is it, for example, possible or reasonable to give proposers the opportunity to attend – and thereby compromise the principle of equality for all shareholders?

Information to shareholders is key

•  In any case, companies should ensure that as much as possible is done to keep shareholders informed of how the AGM will be conducted, how they can participate and vote and, in particular, how they can ask questions, and how and when those questions will be answered.
• Companies might also consider establishing a dedicated area of the website for ongoing information about the AGM and/or establishing a dedicated email service to allow shareholders to ask questions about the meeting.

REGULATORY CHANGES AS A CONSEQUENCE OF SRD II
For the 2021 AGM season the remaining elements of SRD II will apply: 1) the requirement to prepare and present a remuneration report at the AGM; and 2) the rules relating to shareholders’ right to be informed about general meetings and other corporate events.

Preparation and presentation of a remuneration report

• The Board of Directors must prepare a clear and precise remuneration report that gives a comprehensive overview of the total remuneration received by each member of the Board of Directors and the Management Board during the previous financial year.
• The report must include the remuneration of both existing and former members of the management in the relevant financial year and must, for example, include any previous management member’s severance pay.
• For further details of the required content of the remuneration report, see here.
• There must also be a vote at the general meeting on the remuneration report. This will only be a guiding vote, however, and if the general meeting does not approve the remuneration report, in the following financial year the company will be required to explain how it has taken the result of the vote into account. The vote concerns the overall report and not the remuneration of the individual members of the management.

Shareholders’ right to be informed about general meetings

• Issuers are required to transmit all relevant information about general meetings to all end-investors, in order to ensure that the end-investors are proactively informed of specific company events.
• The issuer must send information about general meetings and other corporate events to its bank/issuing agent. The issuing agent is then responsible for uploading the information on the VP platform (the solution chosen in the Danish market) via a standardised ISO messaging format. Via the VP platform, the information is transmitted to relevant intermediaries that are responsible for pushing the information to end-investors.
• End-investors will receive the information in their e-Boks (Danish investors) or via their bank.
• In addition, issuers must send confirmation of receipt of votes to the shareholder, or the third party who cast the votes on behalf of the shareholder (via the investor portal or directly to the shareholder), and also send confirmation of the counting of the shareholders’ votes, at the request of the shareholder.