The 2020 and 2021 AGM seasons were completely different from any that we had seen before, as the world adapted to a series of challenges. The most notable issue was the COVID-19 pandemic and the resulting social distancing requirements around the world, which meant shareholder engagement had to transfer online.
In parallel, environmental, social and corporate governance matters increased in prominence, highlighting particularly the effect of companies’ practices on climate change as well as diversity and inclusion within organisations. However, looking forward, what are the trends that will affect the next round of shareholder meetings? What will AGM season 2022 look like?
This article explores the changing role of general meetings, considerations for virtual shareholder meetings, the challenges corporations are likely to face in 2022 and how you can prepare for the next season in order to make the most of your AGM.
The Changing Role of the AGM
Investor group ShareAction recently stated that there should be a radical rethink of the way that AGMs work. It criticises the fact that so many votes are cast ahead of the meeting that the discussion at the event is almost irrelevant. When the majority of shareholders have already made up their minds, this prevents them from using the meeting to hold the company to account, says the group, adding that AGMs are “less powerful if investors don’t use them to inform their vote.”
Another reason that some AGMs are seen as ineffective, according to Bridgehouse, is that they are often poorly attended and that is often due to them being held at times that make them inaccessible for many investors. A number of AGMs occur during working hours on weekdays, meaning many people are otherwise engaged. In addition, many institutional investors do not need to wait for an AGM to access the board. They have the influence to engage with companies all year round.
There are many experts, though, who believe that digitisation will transform AGMs. Marks and Spencer’s Chair, Archie Newton, told the Financial Times that “true digitalisation of our regulatory framework will democratise and not dilute shareholder voices.” He pointed to a 200% increase in shareholder engagement when his company began trying “to replicate the cut and thrust of the old AGM Town Hall event.”
Challenges on the Horizon for 2022 AGM Season
COVID-19 has not been defeated and many European nations have had to increase their restrictions in order to curtail the rising case numbers in autumn 2021.
- The Netherlands entered a COVID-19 lockdown on 13 November 2021, with sporting events taking place behind closed doors, shops having to close early and limits on the number of people allowed to gather at any one time.
- In Belgium, the government issued a declaration that mandates working from home for four days a week from mid-November to mid-December 2021.
- In November 2021, the German federal government was considering whether to introduce a new lockdown and mandatory vaccinations. Health minister Jens Spahn warned that Germans would be “vaccinated, cured or dead” by the time spring 2022 comes around.
With ongoing uncertainty about what the situation will be like at the time of the 2022 AGM season, companies have to be prepared for all possibilities. The best way to ensure that an AGM will be able to go ahead as planned is to organise a hybrid event. This means that there is capacity for some stakeholders to attend in person and others to join online. In this case, if restrictions are eased, people can attend as usual and if they are not, you can easily accommodate remote attendees. Hybrid events offer great flexibility as a balance between an in-person and fully virtual meeting.
However, understanding how best to approach a hybrid meeting takes a lot of thought and consideration. First, you need to check local legislation and your articles of association to ensure you are allowed to take your meeting online. Then, you must ensure the notice of meeting is adjusted to provide details about how people can attend, the computer settings they will need to implement and details on cookies and data protection, for example.
When it comes to the event itself, you must make it a seamless experience for both physical and virtual attendees, ensuring that neither group is disadvantaged simply because of the way they join the event. Everyone should have the same opportunities.
If you are looking for an end-to-end provider for your 2022 AGM, try Company Webcast. This platform powers more than 10,000 webinars and webcasts every year, bringing expertise and experience to an event and ensuring the in-person and remote experiences are aligned to provide a fulfilling experience.
Online voting and interaction
Online voting was a contentious issue during the 2020 and 2021 AGM seasons, as companies grappled with the new virtual world of shareholder meetings. In the UK, the Financial Reporting Council (FRC) highlighted the practice of holding “closed meetings” with a small quorum during the 2020 season, claiming that this “did not support good shareholder engagement.”
Many organisations required proxy votes on resolutions ahead of the event, with no option for live voting at the AGM. This meant the meeting was utilised more as an event to announce results and present the annual report than to debate and resolve issues.
In addition, many investors are concerned about fully online AGMs as this could result in shareholders losing their voice on important matters. Kalina Lazarova, director and analyst in the Responsible Investment team at BMO Global Asset Management, said:
“We have recently heard from companies in Germany that the lack of live Q&A removes a degree of scrutiny and pressure from directors at the AGM. We worry that if these practices become widespread…shareholder democracy, particularly retail investors’ access to boards, will be eroded.”
You must facilitate a fair and effective channel for real, tangible debate, discussion and even dissent at your AGM in order to give investors a reasonable opportunity to be heard. If a traditional show of hands approach isn’t practical then you must explore online voting.
Using Company Webcast in combination with an online proxy voting tool, you can take a shareholder vote during company meetings and encourage additional real-time interaction with polls, questions and other features.
ESG preparedness and strategy
Sustainable investing continues its upwards trend, and organisations need to reflect that when preparing for the 2022 AGM.
Sustainable fund products have more than doubled their net assets since 2018, according to ALFI’s European Sustainable Investment Funds Study 2021. It also reports that “more than half of the net new money that went into the investment fund market in 2020 was attracted by sustainable funds.”
Asset managers are ever more interested in non-financial performance and will expect climate and social KPIs to play a key role in determining executive remuneration and other major decisions. Global proxy advisor, Institutional Shareholder Services (ISS), is proposing a change to its benchmark voting policies ahead of 2022 to back the use of ESG metrics in remuneration packages, where they are “material to the business and quantifiable.”
In addition, reporting valuable and useful ESG data is important to comply with the EU’s Sustainable Finance Disclosure Regulation (SFDR) for financial services companies, showing that ESG is no longer seen as a nice-to-have but very much a must-have going forward.
This is why it is important that you tell your ESG story to your investors. Be open about your sustainable vision, your ambitions, your goals and your commitment to meeting them. Be transparent about your ESG-related KPIs and keep them informed of your progress.
Investor expectations are difficult to gauge and this is where our ESG Advisory service can help. Our experts can support you from understanding your shareholders’ attitudes and voting behaviours to formulating a strategy to respond to them. This enables your presenters to be fully prepared for ESG-related discussions at your AGM.
Although shareholder activism, in general, dropped between 2020 and 2021, ESG-related activism rose, with 13% of ESG campaigns finding success in the first eight months of 2021, compared to 11% in the same period of the previous year.
It is thought that institutional firms are keen to cut as many risks as possible relating to the companies in which they invest. This means that your shareholder relations efforts must be very clear in order to address their concerns and prevent potentially disruptive activist behaviour at your 2022 AGM.
Shareholders have been paying keen attention to board diversity, as it is suggested to improve performance. Whether it’s diversity in gender, ethnicity, age or experience, it brings new, fresh perspectives into the boardroom and facilitates the discovery of novel solutions to problems, among many other benefits.
In its 2022 ESG Initiatives Report, proxy advisory firm Glass Lewis encourages issuers to manage screening processes for new directors to examine factors, including “the balance of skills and talents and breadth of experience, as well as the diversity of candidates and existing board members. Diversity of skills, abilities and points of view can foster the development of a more creative, effective and dynamic board.”
On ethnicity, the 2017 Parker Review on ethnic diversity on UK boards made recommendations that companies should implement internal policies to promote diversity. This included deadlines for boards to onboard at least one member from an ethnic minority. For FTSE 100 companies, the deadline is 2021. For FTSE 250 companies, it’s 2024.
The directors of these firms should be able to show shareholders the progress that they have made to meet or prepare for these deadlines. For non-UK firms, diversity is still a hot topic that you must be able to show you are actively addressing.
Voting on the remuneration report could be a point of contention, even going into 2022. Many shareholders have been unhappy about bonuses offered to executive directors despite companies receiving government support during the pandemic.
In addition, investors will be monitoring the ratio of CEO to employee salaries over the coming years. This is in response to reports that found chief executive pay has been growing at a faster rate than the stock market when salary and annual bonus payments are combined.
It is going to take some time for us to truly understand what the post-COVID landscape will look like. It is certain that the virus will continue to play a large role in shaping the AGM season in 2022. However, it is not the only external factor and that is why IROs have a big job ahead of them to prepare for the next shareholder meeting.
Understanding your investors as well as analysing their motivations and requirements is essential. It is also important to ensure that they have the correct channels open to them to help them attend and engage with your annual general meeting.
To find a better understanding of your shareholding structure, with the detailed analysis you need, contact our Shareholder Analysis experts.