We have become used to living in lockdown. We have become used to birdsong replacing traffic noise, to working from home, to virtual meetings. We have become used to Webex, to staying in, to social distancing. Many are predicting that the changes thrust upon us by Covid-19 could have a lasting impact on the world of business and work: business travel, large offices and meetings are set to shrink as professionals around the world weigh up the costs and benefits of adopting new practices learned under lockdown.
For investors and listed companies, another institution may be changed irrevocably by the pandemic: the annual general meeting. But firms tempted to make changes should think long and hard before committing.
Companies are obliged to hold AGMs, and their shareholders – no matter how small – are free to attend. For small caps, these meetings are often no more than small gatherings of executives on one side of the table, analysts and a few representatives of institutions on the other, with additional parties listening in by conference call. For many global companies, the AGM has become a large-scale jamboree, with hundreds – even thousands – in attendance, enjoying free catering and picking up literature and merchandise.
Perhaps the most celebrated AGM, that of Berkshire Hathaway, is known as ‘Woodstock for Capitalists’, attracting 40,000 shareholders to enjoy a party atmosphere in Nebraska, enlivened by Warren Buffet-themed merchandise and giveaways.
But no matter the size or cost of the AGM, it is an important pillar of corporate governance. It is the manifestation of equal shareholder treatment, when a one-share owner has as much right to ask a question of the chairman as the institution holding 50 mn shares. And this democracy of shareholders is being defended now as never before.
With coronavirus, social distancing and global lockdowns, companies have been given concessions (in some cases instructions) by regulators to hold their AGMs remotely. As a consequence, 2020 has seen the appearance of the videoconferenced AGM and a rise in proxy voting as shareholders are obliged to stay away and interact remotely.
In the main, the development has proceeded smoothly: shareholders can presubmit questions to the board, while proxy voting systems mean no shareholder is without a voice.
But the development has been received badly by some shareholders. The suspicion is that companies will get used to the absence of awkward direct questions to the board at the AGM and will seek ways of permanently holding their meetings virtually – so shareholders are fighting back.
Standard Life Aberdeen, a UK-listed $7 bn capitalized asset manager, was defeated on the seemingly mundane motion to approve and adopt its draft articles of association. In total, 37 percent of shareholders voted against the motion, meaning the firm could not proceed. What drove the rebellion was the clause that would have allowed the company to call meetings where shareholders could attend remotely.
Governance activists and shareholders smelled a rat, believing this would allow the company to avoid scrutiny, dodge tough questions and hide from shareholder discontent through remote-only AGMs in the future.
The motion required 75 percent support, and so was rejected, leaving management to state: ‘The board recognizes the importance of the AGM and values engaging with shareholders, in particular due to the strong retail shareholding in the company… In the coming months, we will engage with institutional shareholders on the concerns raised on this resolution.’
Why does the Standard Life Aberdeen episode matter? Because it shows that, given a just cause, the spirit of shareholder democracy is alive and well, with activists able to whip up significant opposition and leave boards of directors looking uncomfortable in defeat.
The AGM is the most visible manifestation and reminder that companies are owned by their shareholders, not by their boards and management. And, as owners, shareholders have the right to look the chairman in the eye once a year and ask difficult questions.
While coronavirus may have introduced and accelerated the adoption of the virtual AGM, companies should not be seeking to make this a permanent arrangement. We may be working more from home in future, but the live-event AGM will not – and should not – be usurped by a virtual meeting.
Oliver Schutzmann is CEO of Iridium Advisors and a regular contributor to IR Magazine