As New Zealand faced its second year of COVID-19 in 2021, a lengthy lockdown during the second half of the year saw an increasing shift in our clients opting for hybrid and fully virtual meetings.
Our client companies, wary of the risk of lockdown announcements, opted for the security of online meetings with the number of hybrid meetings held increasing by 70%, offset by a 58% decrease in the number of physical meetings held over 2021. The number of fully virtual shareholder meetings increased by 7% during that time.
The total number of shareholder meetings was steady at 90 events over the last 12 months (91 during 2020). Our clients made use of our expertise, involving us in 80% of all shareholder meetings – up from 70% prior to the pandemic.
Companies made use of pre-recorded presentations and videos, giving events enhanced production values, adding further layers of complexity and management by Link Group and our AV partners.
In many cases, overseas directors were unable to travel to the meetings without spending time in mandatory quarantine facilities. In these situations, we could stream them into the meeting from various locations. They could present to the meeting as and when required with seamless switching between remote and physically present directors, along with videos and online presentations or slides.
Whilst there was a large uplift in overall attendance compared to the previous year, attendance by virtual visitors during 2021 was down by 7%. However, shareholders logging in to vote and ask questions increased by 15%.
One of the consistent statistics over the last five years is that 85% of shareholders cast their vote prior to the meeting, regardless of whether the meeting is virtual or physical. However, as we noted in previous years, the increase in attendance at hybrid meetings tends to be at least double that of physical meetings with many shareholders, having already voted prior to the event, deciding to watch the proceedings online.
We have seen a trend of many more companies allowing pre-meeting questions to be submitted from shareholders to shape their presentations and cover the most pressing issues that shareholders want to raise. Five years ago, only 10% of our issuers would take this approach. This has now increased to two thirds of our issuers in 2021 – up from 45% in 2020 and 29% in 2019.
Shareholders have engaged more on our virtual platform with a 10-fold increase in attendance since 2018, matched by a 10-fold increase in the number of questions asked online. During 2021, 685 questions were asked by shareholders online, compared to only 245 back in 2018.
This year, a record 66 questions were asked at one company meeting, up from 52 questions asked at another issuer’s meeting last year. An analysis of the types of questions asked by shareholders across all our meetings showed most questions asked by shareholders (37%) about the direction and strategy of the company, followed by questions on dividends or shareholder benefits (17%) and then general suggestions (12%).
A key insight was that the companies most affected by COVID-19 (i.e., tourism) or changing strategy or direction were subject to the most online questions this year. Examples included Air New Zealand (42 questions versus 8 questions asked online in 2018), Auckland International Airport (33 questions versus 3 questions asked online in 2018), and Ruapehu Alpine Lifts (66 questions this year compared to 9 online two years ago).
During 2021, the discussion around the accelerated use of hybrid or virtual meetings for AGMs was under the spotlight. However, less high profile and lurking in the shadows has been a developing concern about the need to address the shortcomings of AGMs. These concerns have particularly highlighted a lack of engagement by shareholders in the business of the meetings and, by extension, in the companies being invested in.
Below we look at some of the statistics from 2021 and the debates emerging around AGMs.
Voting – choices, digital and volumes
During 2021 we analysed the voting results of over 9,000 resolutions at over 900 of our client General Meetings (GMs) and compared these to 2020.
On the positive front, electronic proxy voting and paperless proxy voting continued to grow in popularity and usage, continuing the move away from physical delivery to the use of digital mechanisms for company general meetings.
- 55.02% of proxies lodged were in electronic form – a 3.9% increase on 2020
- 44.98% of proxies lodged were in paper form – a 4.4% decrease on 2020
Some statistics showed a downward turn, particularly in relation to the electronic means and the volume of shares voted.
- 64% of shares voted via electronic means – an 18% decrease on 2020
- 36% of shares voted via paper – a 63% increase on 2020
The average amount of issued capital being voted at meetings continues to be high but this has dropped compared to 2020. On average, 56.92% of share capital was voted for each resolution – an 11% decrease on 2020.
There was also a slight fall, for the second year, in the number of shareholders submitting a proxy appointment. Only 4.93% of registered shareholders exercised their voting rights via proxy appointments compared to 5.19% in 2020.
There may be some “pandemic influences” at work amongst the numbers perhaps with more paper proxies being submitted because investors were not attending GMs in person. However, the fall in volumes might suggest a fall in interest and engagement in the actual process and outcome of the GMs. Investments in equities appear to be strong, economic forecasts are positive and returns for investors are still possible. However, there may be some feeling about a lack of trust in corporate regimes after some high-profile company collapses over the last few years, linked to accounting and auditing failures.
Engagement and participation
Social distancing measures meant that the “standard AGM” was largely abandoned in 2020. Many companies held their shareholder meetings behind closed doors. The measures contained in the Corporate Insolvency and Governance Bill 2020, allowed companies to hold GMs virtually regardless of legal or Articles of Association stipulation. This temporary provision remained in place until 30 March 2021 in the UK and similar arrangements in Ireland were extended until 9 June 2021. In both cases, these clearly impacted the AGM season in 2021.
In 2021 there was:
- A significant number of closed meetings with no shareholder attendance
- More use of audiocast and webcast to communicate the AGM on the day
- More use of full electronic / hybrid meetings with voting on the day
- Increased use of pre-AGM virtual shareholder events to gather shareholder views / questions
- Much more communication with shareholders about pre-lodging questions for directors at the AGM using the company websites.
An increasing number of companies have utilised the hybrid meeting model where they already have regulations in place and many more have been seeking approval for changes to Articles of Association.
- In 2021 32 FTSE 100 companies changed Articles to enable holding hybrid meetings, compared to 16 such approvals in 2020
- At least 29 other FTSE 100 companies already have electronic meeting provisions in Articles
“Engagement deficit” – a UK problem?
Is the perceived lack of engagement in UK AGMs a problem relating to the investors, the culture or our processes? It is interesting to note the different approach to shareholder engagement in the USA where shareholder-requisitioned resolutions are a key form of shareholder engagement. It is rare to see an AGM notice in the UK that contains a shareholder requisitioned resolution – some rare ones have surfaced relating to remuneration and pensions.
The number of resolutions that are eventually subject to shareholder votes will be lower than the number filed, as every year some proposals are either dropped by their proponents or are blocked by companies after appeals to the Securities and Exchange Commission.
However, the total number of resolutions filed is a valuable guide to the scale and persistence of shareholder activism on ESG issues in the USA. ESG is a big issue in the UK, but not one that has yet fired the investing community to start requisitioning resolutions wholescale.
Whilst we are seeing evidence of “protest” votes, it is interesting to note that the Public Register hosted by the Investment Association indicates that, in 2021, there were around 200 resolutions in the UK showing significant votes against (20% or over). Broadly, the view is that:
- These are a warning to management, rather than a real disagreement with a resolution or a wish to derail things
- Many investors are registering votes against resolutions to start with, especially on remuneration. But with a bit of communication, these have been turned into a vote withheld or even, in a small number of cases votes for.
US investors appear to be more active and engaged as there are many more shareholder requisitioned resolutions than there are in the UK and Ireland. Should we be worried by this “engagement deficit”? Is it an approach which is purely a reflection of a different culture, or is there a real need for engagement that can apply the brakes to companies who are not doing enough to protect the environment and society? Are UK shareholders discouraged from being active with resolutions and voting because the regulation and legal requirements are difficult to negotiate?
Most companies operate their AGMs with multiple voting channels – paper, electronic and web – so there is no obvious restriction there if you are a shareholder named on the register. If you hold shares via the intermediated model, then your power as an investor may be limited by the desire of your portfolio manager to gather votes and views and facilitate the exercising of shareholder rights.
Engagement – the wider debate and the future
2021 has seen much disruption in the nature, manner and delivery of AGMs because of the constraints imposed by the pandemic. Debates about closed meetings and the value or otherwise of virtual and hybrid meetings has somewhat “supercharged” a discussion that had been bubbling under for many years about the future and purpose of the AGM.
In their October 2020 document AGMs: An opportunity for change, the FRC analysed 202 AGMs held by FTSE 350 companies between March and August 2020, affected by the pandemic. Whilst this looked at how companies had used the regulations around closed meetings because of the pandemic, the FRC did indicate that for the future they would be supportive of moves that would see:
- A significant increase in use of technology by companies for interaction with investors
- Shareholders providing email addresses and using electronic comms options
- Proxy advisors/investors supporting resolutions for Article change to enable meeting flexibility
- A push for changes to allow virtual / hybrid meetings.
After the conclusion of the 2020 AGM season, there were many voices calling for a rethink and a solution to the need for “proper” engagement with stakeholders and shareholder investors.
The debate continued into early 2021 as ShareAction made a number of proposals about the Future of AGMs and how various changes might lead to more meaningful engagement with shareholders and other stakeholders. These included;
- Engaging with “registered stakeholders” throughout the year
- Pre-AGM Q&A – open to shareholders and stakeholders
- AGM – shareholders and stakeholders attending - no voting
- Annual shareholder vote after AGM has been held.
In March 2021 the Department for Business, Energy and Industrial Strategy published a long-awaited White Paper. This set out proposed reforms to the UK’s audit and corporate governance framework to address a lack of trust in the power of audit. This acted as a guide to corporate health following corporate failures that revealed audited financial statements that were not transparent or even accurate about the state of the businesses in question. The consultation discusses major issues for UK companies around how they approach their financial statements and reporting, requiring additional processes and procedures as well as significant changes relating to engagement with investors. These include:
- Shareholder views on the audit plan – here the suggestion is to amend the Governance Code so that shareholders of Premium listed companies can suggest to a company’s audit committee areas of emphasis to be considered in the auditor’s annual audit plan. Shareholder suggestions unrelated to company audit (about business or strategic risks) might be considered as part of Audit and Assurance Policy
- Audit and Assurance Policy – The Policy will be required to be included in annual reports, and subject to an advisory shareholder vote (for main market listed companies).
This consultation has closed and we await the Government response.
It would appear that industry and government voices are lined up to push for change to deliver engagement and to confirm the role of the AGM in the future.
- Many believe that there is a need for increased communication between companies and shareholders including more shareholder events fronted by directors
- Some want shareholder events to discuss the business of the AGM before the day of the AGM, to enable proper consideration of proposals before a vote is taken
- Others believe that the AGM itself should be expanded to accommodate all stakeholder voices as well as shareholders
- The integrity of the legal and regulatory requirements of the AGM has supporters who would not want to see the event extended or disrupted
- There have also been calls for stakeholder events to give voice to wider concerns and ideas than those of the shareholders.
This last year has proved that an expanded AGM can be technically accommodated as can hybrid and virtual meetings to deliver communications, views and formal voting. Equally, multiple events throughout a company year for shareholders or stakeholders can be facilitated. The technical capabilities are there to keep the AGM in the spotlight, but decisions need to be made about what is needed to push back the shadow of falling engagement.
- Is the AGM of the future capable of providing meaningful engagement?
- Is it just a formal platform for boards to be challenged and for required voting?
- Can the formal AGM be effectively expanded to incorporate other stakeholders?
- Do we need other events to create opportunities where companies can listen, reflect, and use the feedback to inform decision making and the formal AGM?
For the sake of our future corporate health and to facilitate engagement with shareholders and stakeholders, the industry needs to decide what it wants out of the formal company meeting.
When the COVID-19 emergency legislation was extended on 11 November 2020 for another year to 31 December 2021, a sigh of relief passed through the home offices of those responsible for AGMs. Legislators had finally recognised that the pandemic would continue to keep the AGM world on tenterhooks.
The “Act Concerning Measures to Combat the Effects of the COVID-19 Pandemic” (COVMG) of March 2020 had introduced the possibility of virtual general meetings and shareholders' meetings. In October 2020, the Federal Ministry of Justice and Consumer Protection extended the period of validity of the law, originally limited to 2020, until the end of 2021 by ordinance. Shortly before the end of the year, the legislature had passed further amendments providing planning certainty.
The amendments were based on the experience values gained from the 2020 AGM season. These included strengthening shareholders' right to ask questions, changing the deadline for submitting questions in favour of shareholders, and introducing a motion fiction for election proposals and countermotions, but not for motions on points of order.
Once planning security prevailed, the AGM dates for 2021 were quickly fixed. It became clear that the culmination of AGM dates from when AGMs were held physically would level in again in May and June. There continued to be the shareholders' and members' meetings of unlisted companies and associations, which have remained loyal to us and will probably remain so in 2022, as the emergency legislation has been extended until the end of August 2022.
A look at the statistics:
- The number of questions asked remained roughly at the previous year's level. If we exclude the questions asked by a single shareholder (who asked up to 120 questions at some companies!) the average was 30 questions per AGM, with many small AGMs having no questions at all
- Depending on the date of the meeting, the number of attendees was on par with the previous year or even lower - for example, if multiple AGMs fell on the same day.
The Link Group AGM team served 267 Meetings in 2021:
- 226 were virtual (i.e., 85% of the clients chose a fully digital solution)
- 2 were hybrid
- 28 were physical, with 7 in Autumn / Winter, the rest in Spring / Summer. No more than 20-30 visitors showed up personally
- The rest voting without meeting or just registration office services
Around 34,000 participants were connected to the virtual formats via our HV portal as part of the various meeting formats. The frontrunner in July was the meeting of an interest group comprising around 160,000 members, around 1,000 of whom attended the two-day general meeting.
It was observed that questions from well-meaning shareholders were not submitted at the end of the submission period, but 2-3 days before the deadline. But critical shareholders, on the other hand, stretched the deadline to the end and in some cases did not submit their questionnaires until shortly before midnight. The boards took plenty of time to answer the questions in detail to counter the criticism that the virtual AGM deprived shareholders of the opportunity to exchange views with the Management Board and the Supervisory Board.
Overall, it was noticeable how the 2021 AGM season benefited from the lessons learned from the 2020 AGM season. Both in terms of content and technology, a completely different level was again achieved to maintain the tension. This included shorter speeches by the Board of Management, image changes through the inclusion of moderators who read out the submitted shareholder questions, which were then answered by the Management Board. There were significantly more video interludes and some companies offered shareholders the opportunity to submit two-minute video messages or statements of up to 10,000 characters. This was used by the shareholder protection associations, which were given a platform to continue to "visibly" represent the interests of their members at the Annual General Meeting.
Case Study: Digital Speakers Registration Desk
At the Annual General Meeting of Commerzbank AG on 18 May 2021, shareholders who had registered in time and submitted questions during the announced deadline were given the opportunity to ask up to three further questions on the day of the AGM via the “Digital Speakers Registration Desk”.
In practice, shareholders who had submitted questions in advance, could register from the start of the Annual General Meeting via the "Register to speak" button to submit follow-up questions during the AGM via the AGM portal. These were entered in the list of requests to speak – in the same way as at a physical AGM with shareholders present. The chairman of the meeting reviewed these and assessed the number of requests to speak. He informed the shareholders about the procedure to be followed at the AGM for submitting questions.
Questions submitted in advance were answered by shareholder, not by topic blocks. After the Management Board had finished answering questions, submitted in advance by a shareholder, the "submit question" function was reactivated in the portal for 15 minutes – as described in advance by the chairman of the meeting – without the chairman of the meeting announcing this again separately. The chairman of the meeting provided the shareholder with an opportunity to submit questions in writing via the AGM portal for 15 minutes. After 15 minutes, this function was deactivated in the shareholder's individual portal.
During these 15 minutes, the Management Board answered the questions of another shareholder, and this shareholder was then given the opportunity to submit further questions if they had asked to speak. To avoid idle time, an attempt was made to first answer the questions submitted by those shareholders who had registered to ask questions on the list of those who registered to speak.
- 28 shareholders had submitted questions in advance, 9 of whom asked questions on the day of the AGM
- The AGM began at 10am with around 600 shareholders or their proxies attending
- The first question was received at 12.10pm from a representative of the shareholder protection association
- The last question was received from an institutional investor at 3.30pm
- On average, the responses per demand were available after 27 minutes on the day of the AGM.
Transferring more features from the physical AGM to the virtual world not only takes account of shareholders' rights, but also encourages interaction and engagement. We are convinced that the majority of DAX and MDAX issuers will offer this option in the 2022 AGM season.
Amid a severe second wave of the pandemic, the Ministry of Corporate Affairs and the Indian Capital Market Regulator, SEBI, allowed virtual AGMs to be held up to 31 December 2021 without a blanket extension.
On average, AGMs lasted for an hour and saved costs by approximately 40%. The shareholder participation was noticeably higher compared to last year.
In a poll conducted on the side lines of a recent symposium on shareholder management, two-thirds of participating India Inc. executives batted for virtual AGMs. Citing respective experiences, panellists shed light on how virtual AGMs resulted in higher shareholder participation and engagement and encouraged virtual AGMs. Given the advantages outweigh the drawbacks, most corporate executives expect virtual AGMs to continue either in an online or hybrid format.
Link Intime conducted 454 virtual meetings on its own platform “InStaMEET’ with participation of more than 20,500 shareholders in these meetings. A considerable 262 out of the 454 AGMs occurred in September. The trailblazing did not end with the ‘InSta MEET’ platform launch – this year we also introduced a new ‘premium’ version of our virtual meeting capabilities. This version received the buy-in of some discerning clients and we plan to extend this premium offering to many more clients in the forthcoming year.
We live in a VUCA (volatile, uncertain, complex, ambiguous) world – but we are optimistic about another successful AGM season in 2022!