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The annual general meeting (AGM) circuit in the UK is famously formulaic. Grey-haired pensioners grasping a paper prospectus congregate for endless spreadsheet presentations, tedious question and answer sessions, and, finally, a reception where directors and shareholders mingle over tea, a prawn sandwich or a pint.
AGMs of listed companies are an annual highlight for some shareholders who relish the chance to give feedback to company directors. A few have taken on a mythic quality, such as the Berkshire Hathaway AGM in Omaha, Nebraska, which drew in over 35,000 attendees. Some shareholders attend 50 to 100 meetings every year.
But due to the pandemic, 2020 has been an AGM circuit unlike any other. Companies have held closed-door meetings, or hosted digital AGMs over Zoom. Investors say these rapid changes have hurt their ability to participate as company owners, and fear companies will use this precedent to reset annual AGMs to do “the bare minimum necessary” and move online forever.
But companies say this year provides an opportunity to reset a “broken model” of shareholder engagement and restructure AGMs, which many boards of directors think of as a chore.
“This is going to hasten the issue of what is the purpose of the AGM and how it works,” says Peter Parry, the policy director of the UK Shareholders’ Association, a campaign group for private investors. “The current format needs a fundamental review.”
Mr Parry points to a problem that predates the pandemic: the small number of private shareholders who are actually named on company registers. Investment platforms have brought investing to the masses, but shares are held via “nominee accounts” which pose a barrier for shareholder engagement, creating “yet another obstacle” for nominee shareholders to access online AGMs.
One retired accountant who attends around 90 in-person AGMs a year, says he is “disappointed” by this year. Only a quarter of the 40 companies FTSE 100 and FTSE 250 companies he invests in opted to hold live online AGMs. Most chose to take what he called “the line of least resistance” and publish videos online after the fact.
The opportunity to ask questions is a large part of the draw of AGMs for retail attendees, but investors say that some of their submitted questions have been left unaddressed, or that companies reply directly to shareholders over email. “This is awful, as in most cases I am not aware of other shareholder’s concerns, and have no idea whether any of the directors ever saw my, or other shareholders’, questions,” the retired accountant says.
Though even in-person AGMs are described as dull and procedural, with an emphasis on administration and voting, some attract hundreds of attendees. But most companies saw engagement falter as AGMs moved online.
Sainsbury’s AGM is usually attended by hundreds of retail shareholders, and is held at the QE2 conference centre near the Houses of Parliament. But this year’s online presentation attracted only eight registered private shareholders, according to the company. The drop-off in AGM attendance, investors say, indicates the value of the meetings stretches beyond the earnings report.
Digital AGMs have led to frustration among investors, many of whom are older and less tech savvy. For some, without the opportunity to ask questions there feels little point in tuning in. “My best chums who, like me, will turn up at the most eclectic places irrespective of catering have just not turned up,” says the retired accountant.
“There is a social scene. It runs both ways. Normally when you get to know the directors they’re pleased to see you as well,” says a retired fireman and longtime investor, who typically attends between 30 and 40 AGMs a year. “It’s so anonymous the way it is now, you click on and they present.”
For some investors, the reason to attend an AGM is in the chance to interact with a company in person, lost in a virtual world. “The value is in the margins, over coffee before and in the half-hour afterwards over a buffet lunch or another coffee,” says Lord John Lee, the private investor and FT columnist. “The board will always stay around for a period to talk and circulate and there is the opportunity to converse and build a relationship.”
He says moving AGMs online poses risks for company transparency: “I think it would be a retrograde step.”
Some companies go to great lengths to help shareholders feel invested in the company. Young’s Pubs annual AGM is described by investors as “a blisteringly good meeting from every perspective”, and is prioritised on the circuit.
The 200-300 attendees share a pint with the company’s management team after the meeting, and investors walk out with vouchers for a lunch at one of the group’s local pubs. “We regard it as a crucial part of our engagement,” says a company spokesman. This year the company held a closed AGM, and said no investors got in touch about attending the event.
The future of the AGM: FT Money readers have their say
FT Money Readers were consistent in their concerns: digital AGMs this year struggled to provide the same level of engagement. If digital AGMs are the future, they said, companies will have to get creative and build pathways to engage their retail base. Shareholders also noted that some companies did well, answering questions and, ultimately, making them feel just as important as larger investors.
Adam writes: “This is a very retrograde step for shareholders and I hope that the AGM format can be revived before too long. As a private shareholder, it’s the one opportunity to see the board and get a sense of a company’s progress.
“It is worth pointing out that Gresham House [the asset management group] although having a closed AGM made steps to give a helpful presentation which shareholders could listen to, ask questions in real time and engage. I asked two questions, one of which was responded to in real time and the second was answered by email after the meeting.
“It is very useful for shareholders to have AGMs and I hope they sustain in the new normal.”
Robin says: “The crucial issue, of course, is the ability to ask . . . questions of the directors and managers on a face to face basis in public and in front of other shareholders. Follow up supplementary questions are also enabled. Institutional shareholders do not seem to require this privilege, rarely appear and almost never ask any questions . . . Much of this is lost in virtual AGMs.
“The shortcomings are obvious. If the market and the companies themselves wish to attract and retain private shareholders, they must accommodate physical interaction with each other.”
Laurence writes: “I miss the AGMs in London, speaking to other shareholders and asking questions regarding corporate governance, the lack of shareholding of the directors and the value of share buybacks. So I do miss the AGMs. Can’t wait until next year.”
Liz writes: “[Attending AGMs] has taught me a lot, virtual AGMs are not the same thing.”
The retired fireman is concerned that companies will make little effort with online AGMs, signalling to retail investors that their feedback is not important. But he remains hopeful that things will return to normal. “I think for shareholder democracy it’s very important that this country takes care of its private shareholders.”
Though retail shareholders are rarely the majority of a company’s public ownership, AGMs are considered to be largely for their benefit. Nevertheless, the ownership structure discourages participation.
Private investors collectively hold around 12 per cent of the UK’s listed companies, according to data from the Office for National Statistics, but approaching two-thirds of these are held in nominee accounts controlled by DIY investment platforms and online brokers.
Advocates say this has led to a severe erosion of shareholder rights in the past decade, and AGM engagement by nominee shareholders has historically been low.
“Nominees do not make it very well known that AGMs are going to happen and do not make it easy to get a proxy to attend and vote,” says Cliff Weight, the director of the UK shareholder group ShareSoc.
Investors say those who hold shares as nominees feel they are being continually overlooked by companies, and have found it difficult to engage with online AGMs. But there is also an opportunity for disruption, Mr Weight says. Hybrid AGMs (with an online and in-person element) could increase engagement of shareholders, especially those who have previously been excluded by share type and geography.
Mr Parry agrees the online model could open access to otherwise excluded shareholders who live too far away to attend.
In this sense, online AGMs might help focus the meetings on their intended purpose — allowing shareholders to hold board members to account.
Marks and Spencer was one of the most prominent retail-backed companies to host a fully digital AGM this year, a change from its annual 500-700 person live event held at Wembley Stadium.
“Most companies don’t look forward to their AGMs. They’ve become a bit of a chore,” says Archie Norman, chairman of M&S. AGMs are expensive for companies, and a tremendous amount of work for a relatively small number of shareholders. He adds: “A lot of companies, given Covid, have said this is terrific — let’s get rid of the whole shebang.”
Yet Mr Norman feels closed AGMs are “wimping out”. M&S, he says, is “an AGM company” so rather than close their AGM or record it in the traditional format they decided to turn it into a “better show”.
The new AGM featured pre-recorded speeches as well as a morning-television style Q&A session with Mr Norman and executives, where they answered submitted and live questions filtered by the company secretary for relevance. The online event attracted over 1,500 registered shareholders, and received 15,000 views in the following days. M&S employees accounted for 8,000 views.
“Of course, I missed seeing old friends and colleagues, but that was all,” says one M&S investor. “The content gave me everything I wanted and had the added advantage for me of not deliberating on my wardrobe.”
The company says it would like to extend the questions component of their AGM because of its importance to many shareholders. However, Mr Norman says companies should do more to make retail shareholders feel heard beyond the AGM, such as small shareholder days or smaller panels.
With online AGMs likely to continue, regulation has been working to catch up. From September 3, traded companies will be required to provide electronic confirmation of shareholder votes. David Pudge, a lawyer at Clifford Chance, said that shareholder opposition to online AGMs, already common in the US, would be “a failure to move with the times”.
M&S is already planning for next year’s online AGM. Mr Norman says: “You can create a much better outcome than having people come to Wembley Stadium once a year for a prawn sandwich.”
He adds: “We sell a lot of those anyway.”
Investors vote down continuation of online AGMs
Though retail shareholders represent a relatively small proportion of votes for public companies, gaining their assent is important for companies trying to create “buy-in”, or the sense that they are moving in a direction that everyday shareholders support. AGMs traditionally feature voting on resolutions by way of a poll, or show of hands.
Investors who have experienced AGMs under lockdown say transparency is an issue. Often, they don’t know if their questions have been received, and they are being asked to vote on issues that they haven’t had the chance to ask questions about. They feel like they are missing an opportunity to hold company boards to account.
For this reason, many shareholder groups say they do not support measures that would allow companies to hold remote meetings unless an in-person meeting will be confirmed alongside the virtual meeting.
In May, Standard Life Aberdeen shareholders voted down a resolution that would allow the company to hold virtual shareholder AGMs. Yet others argue that virtual meetings would open up AGM attendance to a much wider group of investors.
Though the Standard Life vote was not surprising, it is “disappointing”, says David Pudge, a corporate lawyer at Clifford Chance, “particularly against a backdrop of concerns about a lack of shareholder engagement where companies are having to hold their AGMs by way of ‘closed meetings’.”
There is a risk that rejecting the adoption of virtual AGMs could lead to retail investor being further excluded, as companies will simply move to closed meetings to avoid criticism and expense.
Most major shareholders have already cast their votes by the time AGM attendees are asked for consensus. Resistance among retail investors “[prevents] companies from taking the powers that would allow them to hold virtual-only meetings at some point in the future should it be thought appropriate and legally robust to do so,” he adds.
Companies were given additional regulatory breathing room in June, with the arrival of the Corporate Insolvency and Governance Act which temporarily provides for companies to hold online AGMs, but is set to expire in June 2021. Advocates of virtual and hybrid meetings say the government should extend the provisions. "Companies need the certainty and flexibility to plan ahead, particularly given the potential for second Covid spikes,” says Mr Pudge.
Online-only meetings are common in the US, although they are not particularly popular. Hybrid meetings could be the future, though this season there were a very small number — in part because of the logistical challenges for companies as well as legal concerns and restrictions in their articles.
However, Mr Pudge adds: “I would expect a number of companies will seek to amend their articles at next year’s AGM to build in this additional flexibility as to how they can hold shareholder meetings.”
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