Chapter 15 - Test yourself Q&A's - Board Engagement with shareholders

Question 1

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

Answer 1

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 2

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

Answer 2

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 3

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

Answer 3

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.