Annual general meetings moving online is an example of how the coronavirus could change the way businesses function. The Institut Luxembourgeois des Administrateurs (ILA), the country’s director’s association, saw a 20% increase in participation after moving their AGM online.
There is no clearer manifestation of shareholder rights than at the AGM, where the company’s owners come face-to-face with the people who run their organisation. This is the theory. In reality most shareholders baulk at the idea of travelling long distances to sit patiently to vote or ask questions.
Step forward
Rather than a valuable check on corporate governance, this process can tend to be somewhat dysfunctional. ‘AGMs in their current form deliver too little for companies, for shareholders and for anyone else with an interest in how a company operates and what it plans to do,’ Catherine Howarth, the chief executive of ShareAction, a UK based responsible investment campaign group told the Financial Times recently.
Digital AGMs could be a step forward. ‘Participation in our digital AGM was up by 20% on last year’s in-person meeting, and the feedback was very positive from our membership, with no negative comments,’ noted Carine Feipel (pictured), ILA’s chair talking about the institutes’ annual meeting on 27 May. This move was facilitated by an emergency change in Luxembourg law on 20 March, introduced to help the country adapt to the virus. This temporary reform enabled AGMs to be held online or in written format. In person AGMs can be held, but only if each attendee has four square metres of social distancing space to themselves.
Multi-day AGM
‘The key advantage of the digital AGM is that our members had time to engage with the documentation and video presentations, enabling them to ask questions as they considered how to vote,’ Ms Feipel noted. According to Feipel, it is a misconception that AGMs must be held over a few hours with everyone being present or logging in at the same time. Instead, she says this process could take place over several days.
Materials made available on secure web platforms can be consulted from shareholders’ or members’ desks. Questions can then be posted to a forum and aired at a live Q&A session. Then with time to consider answers and consult with other stakeholders, informed voting takes place. This method also removes the need to organise proxy voting. Reliable IT systems are required though, to ensure that the right people are able to log on and that their participation is recorded.
As well as boosting corporate governance standards, this method is cheaper and less harmful for the environment. Ms Feipel sees no concerns regarding questions of ‘substance’ – proving that a company is genuinely a Luxembourg-based operation rather than a shell entity. ‘Substance is about people, operations, board meetings being on the ground in Luxembourg. This is an annual event that must be held at the registered office but which is often organised with proxies given by the shareholders, so without actual physical presence of shareholders being required.’
Hybrid meetings
Nevertheless there are concerns that the human touch may be missing from these forums, especially as shareholders miss out on the chance to meet executives in person. Also, could this be a way to stifle the chance for activist groups using AGMs to express their views? As well, there might be concerns that opening meetings up could become forums for disgruntled individuals who might raise frivolous questions.
Also for a business group such as ILA the vital process of networking is missing, meaning there is less opportunity to exchange ideas and make business contacts. ‘My preference in the future would be for the possibility of hybrid meetings which feature both physical and online meetings,’ said Ms Feipel.
It remains to be seen how many companies will have used digital tools for their AGMs. Other Luxembourg-based organisations, including ALFI and the Luxembourg Private Equity Association, have held their AGMs online this year, and Ms Feipel has heard of several investment funds and private equity companies doing so too. Yet these are relatively small operations, and otherwise there is little evidence of these techniques being used more widely. ’For a large company with many shareholders across the world this might be difficult to implement in such a short time,’ she says.
It is too early to know if the Luxembourg government will make the emergency arrangements on remote meetings permanent, ‘but in a country that wants to be at the forefront of digitalisation it would appear to be a logical step,’ according to Ms Feipel. She notes that pressure to make these reforms was limited prior to the crisis, but that the lockdown has broken some taboos about what can properly be done online. It provides an ideal opportunity for the country to burnish its image for corporate governance and digital transformation.
