‘Unprecedented’ is the word of the moment, thanks to the coronavirus pandemic throwing up a number of challenges to life and business as usual. One challenge that companies will be facing in particular is how to hold their annual general meetings amid a national lockdown. So how can businesses maintain the best possible governance standards during a disrupted season of AGMs?

What is the problem, exactly?

Travel restrictions, social distancing and a ban on large gatherings have made it impossible to hold an AGM with all attendees in physical attendance. This would likely only be deemed essential work if a person was needed to meet the quorum requirements of a meeting, and the articles of association of most UK firms prescribe a small quorum, most commonly just two people.

Why not just wait?

The Companies Act 2006 requires public companies to hold their AGM within six months of the end of their financial year. Many firms have a 31 December financial year end, so they must hold their AGMs by 30 June.

Meetings can be delayed until close to that date or perhaps opened and then immediately adjourned for a period – but nobody knows how long the pandemic will last. In any case, there are time limits on many important authorisations, such as the power to raise equity capital, which might be desperately needed in the coming months, and those authorisations will expire unless there is a new AGM.

Will it be a contentious season?

Yes. The crisis means many firms will cancel or slash their dividends and shareholders are likely to have urgent questions, given that the future of the business may be at stake. The remuneration policies of a large number of firms are up for renewal and shareholders are anxious to ensure they take account of the economic situation. There is a strong push, for example, to ensure that bonus rules do not set up executives for windfall gains by using the current fall in share prices to set a low hurdle for measuring future performance.

Has the government tried to help?

On 17 April the Department for Business, Energy & Industrial Strategy and the Financial Reporting Council issued Q&A guidance to help companies work out how to handle their AGMs.

Simon Amies, a partner in the corporate practice group of law firm Covington, says that rather than relying on an extension to statutory deadlines, the government indicated it would legislate to temporarily relax the restrictions imposed by articles of association in order to make it easier for firms to safely hold meetings.

What are the main options?

Many firms are holding a closed AGM, often attended by a quorum of just two people armed with proxies representing many other shareholders. Beau O’Sullivan, senior communications manager for investment campaign group ShareAction, estimates that about two thirds of FTSE 100 businesses will hold closed meetings this year, which his group suggests may limit transparency and the voice of shareholders.

A wholly virtual meeting uses telephone or videoconferencing and, perhaps, web-based voting platforms to allow people to formally participate in an AGM that does not have a physical venue.

Another option is a hybrid meeting, in which a physical meeting is backed up by virtual technologies to allow more shareholders to formally participate.

Is virtual viable?

This remains to be seen. Fully virtual meetings are not uncommon in the US but they are rare in the UK, with Jimmy Choo holding the first virtual AGM of a UK-listed company as recently as 2016.

No major British firm has followed suit, and the 17 April guidance from the government and regulators discouraged their use due to the procedural and technical uncertainties and the opposition of most investor groups including the Investment Association.

What does hybrid involve?

In normal times, a hybrid AGM could be based on a large physical meeting but the aim now is to keep physical attendance down to a bare minimum.

That means a quorum of two people could meet in a small venue, perhaps even the home of one of the participants. The chairman can enable other shareholders to participate remotely by using his or her normal common law powers to maintain safety at an AGM, while using technology to allow them to formally participate and ask questions, join discussions and vote.

The Companies Act requires public companies to hold their AGM within six months of the end of their financial year. Firms with a 31 December financial year end must hold their AGMs by 30 June

Most investor groups agree this is a better option than closed meetings, because even when a closed AGM is followed by an informal webcast discussion, it does not allow votes to be informed by such discussions or Q&A sessions. Marks & Spencer and Equiniti held hybrid meetings in 2019 and they have been joined this year by firms including Unilever and Taylor Wimpey.

How should companies prepare?

Whatever path a business chooses it must carefully examine its articles of association and monitor the latest official guidance to make sure the AGM cannot be legally challenged.

The company’s website should keep shareholders informed, encourage the early appointment of proxies and explain how the meeting will be conducted.

Shareholders should be invited to submit questions as early as possible and directors should make special efforts to respond to those questions, most easily through a special section on the company website. Directors should also ensure that IT support is accessible during the meeting.

How should the meeting be run?

The chair should keep the meeting as simple as possible, deferring presentations that are less than crucial and perhaps pre-recording others, while making special efforts to address questions submitted in advance or through virtual technology.

If there is a virtual component, the chair must master the art of the 'mute’ and ‘unmute’ switches to make sure they can control the meeting and allow smooth discussions. The chair must also have a clear way of ascertaining attendance at the meeting by people dialling in and, even if it is not a virtual or hybrid meeting, it could still be live-streamed on the company’s website.

Dominic Sedghi, senior solicitor and regulatory specialist at legal firm Macfarlanes, says one option could be to hold a slimmed-down AGM and use relaxed deadlines for filing accounts to lay the accounts at a later meeting. Shareholder authorities could be renewed for a short bridging period to maintain access to capital, but directors should check their deadlines for director rotation and re-election and political expenditure.

And after the AGM?

To maintain transparency and dialogue with shareholders, companies could hold special events later in the year, either general meetings or less formal contact sessions. A firm’s website could display answers to questions submitted by shareholders and perhaps even a recording of the AGM.

Beatriz Pessôa de Araújo, a corporate partner in Baker McKenzie’s London office, says a separate shareholder engagement meeting could be held when pandemic restrictions are lifted. That meeting would not address the formal business of an AGM but would allow shareholders “to engage with the board on the issues they may otherwise have been minded to raise at the AGM”.

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