Annual shareholder meetings are necessary but they can be costly, ill-attended and often do not add value other than their vital purpose under corporate law. Is it time to rethink them? We think that the problem with these meetings is international in nature and efforts to revamp them should be considered globally.
The role of shareholder meetings as the ultimate decision-making body of companies is vital. While most directors are elected with an overwhelming majority, the right to vote for or against directors is the most important shareholder right. It is this democratic accountability that enables shareholders to wield influence without necessarily having to vote against the board’s proposals. Indeed, there is the argument that voting against boards’ proposals may signify a failure of engagement or a lack of engagement, rather than an effective escalation tactic. Nevertheless, the fundamental right to vote, particularly in companies without a controlling shareholder, can encourage boards to listen to shareholders and add weight to engagement. In other words, it is the right to vote itself that has a powerful influence over boards, similar to the act of voting against a proposal or the re-election of a director.
Annual shareholder meetings have a problem
The COVID-19 pandemic led to shareholder meetings being held virtually on a widespread basis for the first time in history. Now that the pandemic is over, companies that seek to host ‘virtual-only’ meetings as a default need to demonstrate that the advantages of virtual meetings outweigh the disadvantages and that there is no diminution of shareholder rights.
Shareholder meetings are often not well attended. Company boards are concerned about the lack of attendance, particularly from institutional investors. The move to hybrid meetings should have encouraged greater participation, but anecdotally this has not made a significant difference. There are calls from the listed companies to revert to physical-only or virtual-only meetings. In some countries, Italy for example, there are moves to enable companies to hold meetings effectively behind closed doors, be those doors physical or virtual.
Poorly attended meetings are not universal. Germany, for example, often has shareholder meetings that are well attended. Attendance includes institutional investors who ask questions and present speeches about their views on the companies. These events can last for hours because institutional and retail shareholders participate actively. However, such participation has been curtailed by many German companies moving to exclusively virtual events after the pandemic.
In the US, Berkshire Hathaway’s annual shareholder meetings are legendary for their attendance. They are used to explain the company’s strategy and provide investors and retail shareholders an opportunity to learn about the business from the company’s portfolio companies management. Walmart used its annual shareholder meeting to communicate with its employees and suppliers who attended in the thousands (I understand that an employee from every store globally used to attend) in a basketball stadium. However, Walmart now holds its meeting virtually.
Best practice
We support the UK Corporate Governance Institute’s best practice guidelines for holding AGMs. In particular, we expect all directors to attend and be ready to answer questions. For instance, the board chair and the committee chairs should be available to answer questions about the work they’ve completed during the year.
While some shareholders may hold views that are not widely shared, their right to ask questions is important. However, a virtual-only meeting risks diluting the sense of the meeting for those participating. They will not necessarily see who wishes to ask questions, their reaction to the answers provided, whether the chair has acted fairly in choosing people to ask questions and so forth. Importantly, the body language of those asking and answering questions is partially lost. This is also the experience of those participating virtually in meetings that are also held physically.
The extent to which meetings conducted partially or wholly virtually can replicate these important nuances of a physical meeting is vital. We think that hybrid meetings should seek to provide quality video links and use the latest audience participation software. Such software enables physical and virtual attendees to ask questions and show their support for others’ questions (such functionality provides an additional way for the chair and other participants to obtain a different, possibly deeper, sense of the meeting that is not currently available in traditional meetings). It should also enable questions to be filtered out transparently eg. duplicate questions.
Our experience of virtual meetings is mixed: some companies enable shareholders to ask a wide variety of questions, it is not clear how those questions are selected. We have attended meetings where the board has not received any critical questions from the moderator.
Virtual only meetings
We supported the changes necessary to corporate law in various countries to enable virtual-only shareholder meetings during the COVID-19 pandemic. We reluctantly support resolutions that request the ability to hold virtual-only meetings provided that there is an annual public commitment from the board that such a right will only be used in extreme circumstances, such as another pandemic.
If our trust is abused, we will vote against the director we deem most accountable, such as the chair or the chair of the governance committee. We may consider further action to attempt to restore our democratic rights.
Protests at AGMs
Some attendees seek to use shareholder meetings to raise publicity for an issue they are concerned about. We believe that shareholder meetings should be a forum that facilitates peaceful and constructive discussions and debates on strategy, resolutions to be voted on and what is in the best interests of the company and its stakeholders. While we do not agree with disruptive protests or sabotaging behaviour, we expect companies to attempt to facilitate sensible interaction at shareholder meetings and provide ample opportunity for shareholders to ask questions.
Simultaneously, we expect shareholders not to abuse this right and expect all parties to treat one another respectfully and per their rights under company regulations and of established legal precedence.
Re-imagining the shareholder meeting
The companies and their shareholders share the frustration about shareholder meetings: often institutions do not attend; meetings can be perfunctory with low turnout or a large attendance with repetitive questions often on a single or connected issue.
At companies with controversial business models, there can be a lot of shareholders with small shareholdings in attendance who make their feelings known to the board through questions and disruptive tactics. Might it be possible to find different ways to engage with stakeholders? Is there merit in having capital market days with a sustainability component for retail investors and other stakeholders? Could these be held virtually, but with demonstrable transparency? Could these be held in advance of the shareholder meeting to act as a hustings event? After all, proxy voting in advance means that the meetings’ results are not usually materially affected by votes cast on the day. It could be useful to debate the most important issues before the meeting itself.
Should companies engage at such events with stakeholders who represent legitimate constituencies, such as bondholders, employees and other stakeholders, on the understanding that they use their influence to prevent disruption of the shareholder meeting itself? No doubt, all parties acknowledge that peaceful and respectful protests outside the meeting venue are legitimate. Such action may antagonise those who are intent on disruption. However, it may demonstrate a positive willingness to foster mutual understanding, develop more rounded stakeholder dialogue and help find agreement on at least some aspects of complex issues to improve performance.
As mentioned earlier, Italy is enabling companies to reduce rights concerning shareholder meetings. However, in Italy, shareholders have the right to ask questions of the company that should be replied to in advance of the shareholder meeting and published on the company’s website. We think it is time to have a wider debate on the purpose, benefits and downsides of the current shareholder meeting and workshop how it can serve the needs of shareholders and other stakeholders. This piece is an initial contribution to such a discussion.
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