Board engagement with shareholders and other stakeholders

Question 1

What ways, in addition to general meetings, should boards use when engaging with their shareholders?

Answer 1

The UK Corporate Governance Code states that in addition to formal general meetings:
* The chair should seek regular engagement with major shareholders in order to understand their views on
governance and performance against the company’s strategy.
* Chairs of board committees should also seek engagement with shareholders on significant matters related to their
areas of responsibility. Where relevant the chair of the board committee should make the whole board aware of shareholders views on a particular matter.
* The senior independent director, when called upon, should meet a sufficient range of major shareholders to develop a balanced understanding of their views.
* Boards should consider additional ways to engage with smaller shareholders, for example, by way of roundtables,
and webinars.

Question 2

What are the limitations to the use of an AGM as a method of engaging with shareholders?

Answer 2

There are limitations to the use of the AGM as a method for dialogue between companies and their shareholders. These
include:
* The fact that the meeting is held only once a year
* The location may make it difficult for shareholders to attend. Many AGMs are held in central London during the week
so shareholders who live outside London or overseas may find it difficult to attend. Also, shareholders who work
may not be able to get time off work to attend the AGM.
* AGMs often have a limited time duration imposed by the venue, the shareholders or the company. Chairmen
wherever possible should allow all shareholders wanting to ask a question to do so.
This is why many companies seek other methods of engaging with their shareholders to make the interactions more
meaningful and effective.

Question 3

What is a virtual AGM and why do shareholder representative bodies have concerns about them?

Answer 3

Section 360A of the CA2006 permits a UK company to offer shareholders an electronic means for participating in a
general meeting. The electronic means has to be real time, allow for two-way conversation and have a mechanism for
shareholders to vote. These electronic meetings are also referred to as virtual AGMs.
Shareholder representative bodies, such as, the Investment Association (IA) and Pensions and Investments Research
Consultants (PIRC) have expressed concerns in their guidance materials about companies only holding virtual meetings.
The Investor Association in their Position Statement: Virtual-Only AGMs published in December 2017 stated:
‘Our members believe that virtual-only AGMs are not in the best interests of all shareholders and should not be used by
investee companies, as their use could be detrimental to Board accountability. IA members are unlikely to be supportive
of amendments to Articles of Association which allow for virtual-only AGMs.’
This is because the AGM is seen as the only opportunity that shareholders have to meet and question the whole board
of a company. In reality though many institutional shareholders do not send representatives to attend AGMs unless there
is a controversial issue. It is the retail shareholder in many FTSE100 companies who would be affected the most by this
change in format of AGMS.

Question 4

What things should a company consider when planning to hold a virtual AGM?

Answer 4

Things for companies to consider if they are planning to hold a virtual AGM:
* amendment of Articles of Association;
* views of their shareholders;
* technological considerations;
* notice of meeting;
* proxy form;
* helpline;
* preparing the chair and the board.
* to address board meetings, so members of boards hear from stakeholders directly about their concerns and issues.
* Documenting the concerns and issues of stakeholders and lessons learned and feeding this into the risk management, strategic planning, and business continuity processes, so that the company is able to leverage opportunities and lessen negative impacts.
* Recognising that different stakeholder groups may have different interests and ideas. Tailoring engagement and dialogue to better represent stakeholders’ disparate interests to help them understand the reasons for board decisions.
* Developing policies on who within the organisation should be the prime communicator for each stakeholder group.
* Advising the board on any reputational-risk aspects to stakeholder engagement.
* Coordinating with management to ensure that the board is advised on how to engage with different stakeholder
groups.

Question 5

Chapter summary

Answer 5

Chapter summary
* The 2018 Code recommends that companies should ensure effective engagement with and encourage participation
from shareholders and other stakeholders,
* The main vehicle for shareholder engagement is the annual general meeting.
* In addition, the chair and other board members should seek, as appropriate, meetings with major shareholders to
develop an understanding of their views.
* Small shareholders should be engaged through roundtables and webinars.
* The company secretary is usually involved in the annual general meeting and should ensure that:
– shareholders are given the opportunity to ask questions;
– resolutions are ‘unbundled’, i.e. voted on separately for each substantial issue;
– shareholders appointing proxies are given the power to withhold their votes; and
– information about the proxy votes is disclosed at the annual general meeting where voting is on a show of hands.
* The CA2006 permits virtual AGMs. This has proved important in response to COVID-19.
* Companies are, since CA2006, able to communicate electronically with their shareholders via email or by means of
the company’s website. Shareholders do have the right to request hard copy communications.