Towards a more flexible and shareholder-friendly approach to AGMs
Due to the Covid-19 outbreak and the subsequent restrictions, the annual general meeting (AGM) season 2020 was anything but normal.
A totally different 2020 AGM seasonWhen the ban on gatherings of more than ten people in Denmark came into force in mid-March, only a few of the larger listed companies had held their AGM. The rest of the listed companies and other businesses were significantly affected by the Covid-19 outbreak and the resulting new rules and regulations – and they came under pressure in relation to filing annual reports and holding annual general meetings.
At the beginning of April 2020, the deadline for filing annual reports by listed companies was extended – as a general rule – by three months, and management was authorised to depart from provisions in the articles of association stating when the company was required to convene and/or hold its annual general meeting. See the announcement "Bekendtgørelse om midlertidig fravigelse af virksomheders pligter på selskabs- og regnskabsområdet på Erhvervsstyrelsens område i forbindelse med covid-19" here.
The new rules also introduced the possibility of holding a fully electronic AGM, even if this had not been approved in advance by the annual general meeting and stated in the articles of association.
The Act will be repealed on 1 January 2021 at the latest.
“During the period with the ban on large gatherings, many AGMs were deferred, while others went ahead as ‘virtual’ meetings of some kind. Only a few companies chose the ‘real’ virtual AGM form whereby shareholders had the opportunity to cast their votes during the meeting and could also ask questions. The vast majority chose a form of ‘hybrid’ electronic solution, whereby the official AGM was held as a physical meeting – with no or only very few attendees – while shareholders had the opportunity to follow the AGM digitally via a webcast and to vote in advance by email or proxy. The very restrictive ban on gatherings relating to AGMs was lifted on 8 June 2020 (with certain restrictions) and by the end of June 2020, most AGMs had been held – most of them with very few attendees and with live streaming,” Klaus Søgaard says.
Useful experience from electronic AGM formatsFor most companies, the ‘hybrid’ electronic solution was an emergency choice, but nevertheless companies and shareholders have gained some very useful experience from the AGM season.
“On the positive side, we have generally seen that the capital represented at AGMs has been close to the levels in previous years – due to the fact that shareholders have become accustomed to voting in advance of the general meeting, and also the large proportion of foreign shareholders in Danish companies that vote by proxy. On the other hand, the level of debate at AGMs was reduced significantly, due to the very limited physical attendance and the limitations set by the electronic format. On a more practical note, both companies and shareholders have in general become more familiar with the electronic format after the 2020 season,” Flemming Merring, Head of Issuer Services at VP, comments.
The push towards virtual AGMs is expected to continueEveryone had hoped that the challenges posed by the outbreak of Covid-19 would solely be of a temporary nature, but now there are many indications that Covid-19 will be with us for a longer period. At the same time, it also seems that the increased use of electronic solutions has created new expectations among shareholders. Against this background, it is relevant for companies to start to consider how the framework for their AGM can be adapted to the new reality and shareholder expectations, and for regulators to consider which legislative changes may be relevant in the short and longer run to ensure the required flexibility – and support shareholder democracy and engagement.
“I definitely expect that future AGMs will be affected by the many spill-over effects from Covid-19. I anticipate that many companies will choose to hold an increasingly more electronic AGM in the coming years, either by increasing the use of the electronic format, or by holding a partly or fully electronic AGM – and consequently that we will see a continuing decline in physical attendance. I therefore also expect that more boards will ask the AGM for authorisation to decide on the transition to a fully electronic AGM. Despite the opportunity under the Danish Companies Act to choose electronic AGMs, it is not realistic that the larger listed companies will switch to this format in the 2021 season. There are still a number of challenges, including required amendments to the articles of association at the AGM, ensuring shareholder identification, cyber security and the chairman's ongoing assessment that the general meeting is conducted on a reassuring basis and that all participating shareholders have the opportunity to follow, speak and vote. The built-in delay associated with using Internet-based solutions also plays a role. I thus expect that the partly electronic AGM will be the first step for many companies,” Klaus Søgaard says.
In addition to the purely technical issues, the individual company, and also the chairman, must be aware that the partly or fully virtual format naturally presents a new framework for how the AGM is conducted, compared to the normal physical meeting.
“Based on our experience from the 2020 AGM season, we recommend companies to rethink the overall framework for their AGM, including both technical issues and presentation of content, if they decide to continue with the electronic format. It is important that the approach and format both support the effective communication of key messages, as well as shareholder democracy and engagement – so that shareholders feel that it is easy to exercise shareholder rights, that they are well-informed about the company, that it is easy to be heard and that they perceive that their questions are handled appropriately,” Flemming Merring says.
Klaus Søgaard adds: “Generally, I expect the virtual AGM format to strengthen shareholder democracy, especially in the light of the large international and institutional ownership among Danish companies. This will make it easier to participate for everyone, irrespective of geography, and also make it easier to exercise shareholder rights. However, especially in relation to companies with scattered or significant foreign ownership, it is worth noting that both the major proxy advisers, ISS Inc. and Glass Lewis, are critical of the transition to a fully electronic AGM. Both have accepted a temporary relaxation under the Covid-19 outbreak, as long as companies include an explanation for their choice of AGM format and manage to ensure sufficient interaction with shareholders. However, there is a significant risk that both proxy advisers will recommend that shareholders vote against a provision in the articles of association whereby the board of directors is generally authorised to make decisions about a fully electronic AGM from year to year.”
Regulation must support the virtual AGM trendWith the implementation of the remaining part of the Shareholders Rights Directive II (SRD II) in Danish national regulation by the beginning of September 2020, a ‘motorway’ for increased shareholder democracy has been established, but there is still a need for some further amendments and ‘cleaning-up’ of the Danish regulation in order to fully implement the ‘spirit’ of SRD II. The Covid-19 outbreak and the ensuing push towards electronic AGM formats emphasises this need.
“I hope that regulators will support the gradual transition to electronic AGM formats and make it possible for companies to meet shareholder demands and expectations in the best possible and most flexible way. This requires some changes to the Companies Act. To pave the way for a smooth transition to at least the partly electronic AGM in the not too distant future, the rules regarding voting by email may be changed, for example, so that it is possible for shareholders to vote by email during the AGM. According to the Companies Act, today shareholders can vote by email until the beginning of the AGM. In practice, relatively few shareholders want to speak and ask questions at the AGM, and with the above proposed ‘minimum’ change, these shareholders can attend physically, while other shareholders can attend virtually – and listen and take a stand. It may also be necessary to adapt and extend the current temporary rules in order to support companies and shareholders. In my view, there will also be a need for further changes to the Companies Act in the longer run, to support both the electronic AGM format and other aspects of shareholder democracy. For example, it will be a natural next step to change the current rules regarding power of attorney in a way that will make it easier for foreign investors to exercise their shareholder rights,” Flemming Merring concludes.
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