4 September 2020

Guy Jubb, Honorary Professor at the University of Edinburgh Business School, shares his perspective on the future of shareholder meetings.
Time to Rethink Shareholder Meetings?

The accelerated move to virtual shareholder meetings, due to Covid-19, has caused quite a kerfuffle. The temporary provisions of the UK's Corporate Insolvency and Governance Act 2020 relaxed a number of statutory requirements. This enabled meetings to take place virtually under lockdown conditions and were critical for the 2020 AGM season.

The vast majority appeared to proceed smoothly. But the reality is that they weren't meetings in which shareholders could interact with each other and the board, and hold it effectively to account.

It all points to a bigger question. Are AGMs and other shareholder meetings still fit for purpose? Indeed, what is their purpose? Is it to have a meaningful exchange of views between shareholders and the company's board, or are they merely an opportunity to vote? Or neither? Most institutional investors never attend and speak at shareholder meetings, despite tending to own the majority of the shares of listed companies, preferring to vote silently by proxy. Small wonder that many listed companies, who often host poorly attended shareholder meetings with resolutions that are passed with little or no dissent, question whether such meetings are a good use of time and money.

As we adapt to technological trends and continue to transition from shareholder centricity to an enlightened stakeholder model of corporate responsibility, the UK Government should consider commissioning impactful research into the purpose and effectiveness of shareholder meetings. This will position it with reliable facts and well-informed views to enable it to kick off a wide-ranging consultation on a matter that lies at the heart of effective corporate governance and investor stewardship but is currently dysfunctional – and has been for some time.

The scope of the research should encompass the following points.

The conceptual framework for shareholder meetings

What is their purpose and who should they benefit? Are they for voting, for holding boards to account or for communication by boards to shareholders and stakeholders, and vice versa? Every purpose should be addressing a problem. What is the problem that shareholder meetings are trying to address?

Which organisations should have them, how often, and when?

As things currently stand in the UK, all public companies are required to hold an AGM under the 2006 UK Companies Act, whereas most private companies are only required to hold them if stipulated in their articles of association. Should large private companies in which there is a genuine public interest be required to hold an AGM? What about some of the smaller, entrepreneurial listed companies? Should they have more flexibility?

Why do institutional investors not attend and speak at shareholder meetings? Should they?

The 2012 UK Stewardship Code provided for its signatories an escalation escalator to guide them about how to escalate issues and objectives that were proving challenging to resolve or achieve. The escalator guide suggested that Code signatories should consider attending and speaking at AGMs and other shareholder meetings if other less public means of engagement were proving ineffective. Even so, very few did. The escalation escalator failed to feature in the 2020 UK Stewardship Code which itself calls into question the purpose of AGMs.

How should digital technology be embraced?

The business world has adapted to the online environment with such cheerful readiness that Zoom-fatigue and other ailments are rapidly becoming akin to a pandemic in themselves. Digital technology is here to stay, and the challenge is to harness its benefits for shareholder meetings in a way that is responsible and achieves the purpose of the meetings, whatever that may be.

What should be voted on?

The Corporate Governance Report? The Audit Committee Report? The Gender Pay Ratio? 'One size doesn't fit all' is a mantra chanted by governance gurus around the globe, and rightly so. But when one looks at the agendas for AGMs they do seem to lag behind the views of society in terms of what matters. Is the purpose of an AGM merely to satisfy legal and regulatory requirements, or is it something more enlightened?

Should voting on an advisory resolution be binary?

If boards are really serious about seeking the views of all shareholders, the use of multiple-choice advisory votes at AGMs opens the way to better-informed decisions.

Should stakeholders (employers, customers, and suppliers) have a voice? Or even a vote?

As the ESG bandwagon continues to gather momentum, the responsibilities of boards to employees, suppliers, and customers comes into sharp focus, especially in the light of Covid-19, which will cast a long shadow for many years to come.

The changing role of business in society, colliding with a seismic shift in societal values in the wake of the pandemic, makes the need to grasp the nettle of the purpose of AGMs and other shareholder meetings a public interest imperative.

Guy Jubb is an Honorary Professor at the University of Edinburgh Business School. He currently is Vice Chair of the European Corporate Governance Institute and is former Global Head of Governance and Stewardship at Standard Life Investments.
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