In a world of increasing interconnectivity and digitalisation, shareholder meetings have, until recently, largely remained an analogue affair. In the United States, where remote participation in shareholder meetings has been legally permissible in some states for over a decade, the virtual meeting format had been most commonly utilised by small cap companies and represented less than 10% of shareholder meetings. Outside of North America, most jurisdictions had yet to formally legislate to allow for companies to hold virtual-only meetings, or requirements existed that shareholders first approve changes to a company’s statutes.
However, the rapid spread of COVID-19 necessitated a quick response. As outlined in a previous blog post, legislators around the world complemented restrictions on in-person gatherings with the temporary ability for companies to hold their meetings later in the year or in a format that limits the ability of shareholders to attend in person.
Virtual Meetings – the ‘New Normal’?
Given that many companies now have experience with the virtual meeting format and considering the increasing likelihood that COVID-19 will continue to have an impact well into 2021, it is expected that legislative reform is imminent and that the uptick in meetings with reduced in-person attendance will continue beyond this year.
Proponents of the virtual shareholder meeting format existed long before the pandemic and Glass Lewis believes that the increased use of digital technology in the AGM is overdue and could be utilised to improve the shareholder experience. There are two clear benefits for companies and their shareholders of meetings that allow for virtual attendance. Firstly, there are generally substantial cost-savings, which range from financial savings on venue hire, catering, and accommodation, to the reduced environmental impact of fewer journeys. Secondly, shareholders that would have in any case been unable to attend the meeting in person or be represented by a proxy are generally afforded increased abilities to participate in the meeting.
However, any potential benefits for shareholders beyond this are largely dependent on decisions taken by a company and, where in-person attendance is not permitted, there exists the potential for the substantial restriction of shareholder rights unless companies develop and disclose clear procedures to enable the participation of shareholders and allow for engagement with the board.
While shareholders have been generally understanding of the exceptional circumstances of the 2020 proxy season and the quick decisions that had to be taken to enable shareholder meetings to take place, concerns have been raised on the potential for poor precedents being set by the manner in which some meetings were conducted this year. On the other hand, there are now many examples of emerging best practices and clear considerations for companies in relation to the conduct of virtual meetings.
Glass Lewis Views and Expectations
In March 2020, Glass Lewis clarified that, for the duration of the 2020 proxy season (March 1 through June 30, 2020), we would take into account the extenuating circumstance of the COVID-19 pandemic when applying our policies on the virtual-only shareholder meetings of US and Canadian companies. Outside of the US and Canada, Glass Lewis had yet to formalise local policies for the conduct of virtual-only meetings in 2020 given the lack of prevalence of this meeting format and/or relevant legislation prior to the 2020 proxy season.
On a global basis, Glass Lewis unequivocally supports companies facilitating the virtual participation of shareholders in general meetings. Glass Lewis’ concerns regarding virtual meetings only apply in the case where a company has failed to establish and disclose clear procedures to protect shareholder participation rights.
From 2021, our expectations of companies holding virtual meetings globally are as follows:
Glass Lewis believes that virtual-only meetings have the potential to curb the ability of a company’s shareholders to meaningfully communicate with company management and directors. However, we also believe that the risks of a reduction in shareholder rights can be largely mitigated by transparently addressing the following points:
- When, where, and how shareholders will have an opportunity to ask questions related to the subjects normally discussed at the annual meeting, including a timeline for submitting questions, types of appropriate questions, and rules for how questions and comments will be recognised and disclosed to shareholders.
- In particular where there are restrictions on the ability of shareholders to question the board during the meeting – the manner in which appropriate questions received prior to or during the meeting will be addressed by the board; this should include a commitment that questions which meet the board’s guidelines are answered in a format that is accessible by all shareholders, such as on the company’s AGM or investor relations website.
- The procedure and requirements to participate in the meeting and/or access the meeting platform.
- Technical support that is available to shareholders prior to and during the meeting.
We believe that shareholders can reasonably expect clear disclosure on these topics to be included in the meeting invitation and/or on the company’s website at the time of convocation.
In the most egregious cases where inadequate disclosure of the aforementioned has been provided to shareholders at the time of convocation, we will generally recommend that shareholders hold the board or relevant directors accountable. Depending on a company’s governance structure, country of incorporation, and the agenda of the meeting, this may lead to recommendations that shareholders vote against:
- Members of the governance committee, or equivalent (if up for re-election);
- The chair of the board (if up for re-election); and/or
- Other agenda items concerning board composition and performance as applicable (e.g. ratification of board acts).
We do however highlight that, for companies incorporated in jurisdictions in which the aforementioned organisational and disclosure aspects are already required by applicable legislation, the burden on companies to explain their approach is lower. We will always take into account local laws, emerging best practices, and disclosure standards when assessing a company’s performance on this issue. Please see Glass Lewis’ for more details on any specific nuance of our approach to virtual meetings based on the laws and best practices in place in a country.
Glass Lewis believes that hybrid meetings broadly improve shareholder rights by allowing for the increased ability of shareholders that are unable to be physically present or represented by a proxy to participate in a general meeting.
As with virtual-only meetings, we believe that all participants — virtual and in person — should have an equal opportunity to question the board. Moreover, we believe that the disclosure points outlined under ‘Virtual-only Meetings’, above, should also be addressed at the time of convocation by companies holding a hybrid meeting.
Traditional In-Person Meetings
For companies that are permitted and able to convene an in-person meeting we believe that, at least while travel restrictions remain in place, companies should consider ways to increase shareholder involvement, such as through the provision of a live webcast of the meeting and establishing a formal process to enable shareholders that are unable to attend the meeting to submit questions to the board.
Glass Lewis believes that meetings at which shareholders are unable to attend in person or exercise their rights in the course of the meeting lead to a substantial reduction in the ability of shareholders to exercise their rights and enter into dialogue with company directors and other stakeholders.
We will continue to provide reasonable deference to companies that are incorporated in jurisdictions which have current restrictions on in-person gatherings and where there is no established legal framework to allow for a virtual-only meeting at this time. However, we believe completely “closed-door” meetings without any form of virtual transmission or the formal ability for shareholders to ask questions and receive transparent answers before, during, and/or after the meeting should be avoided at all costs. In egregious cases, Glass Lewis will escalate votes against the board as outlined under ‘Virtual-only Meetings’.
Shareholder Authorisation of Virtual Meetings
In some jurisdictions, companies are required to seek prior shareholder approval and amend their statutes in order to hold a meeting with a virtual element or to allow for directors and executives to attend general meetings virtually.
The following is a summary of our views on common proposed amendments and the conditions under which we would generally recommend that shareholders support such amendments:
Amendments to Allow for Virtual-Only Meetings
As outlined above, we believe that virtual-only meetings can lead to a reduction in shareholder rights unless clear procedures regarding the ability for shareholders to participate in the meeting are disclosed at the time of convocation. As such we expect companies proposing to amend their statutes to allow for virtual-only meetings to, at a minimum, include the following commitments in the proposed amendments or in the supporting documents:
- The procedure and requirements to participate in a virtual-only meeting will be disclosed at the time of convocation; and
- There will be a formal process in place for shareholders to submit questions to the board, which will be answered in a format that is accessible to all shareholders.
In cases where the proposed amendments specify that the virtual meeting format would only be used in exceptional circumstances, Glass Lewis will generally recommend that shareholders support such amendments in order to provide flexibility to companies to navigate potential restrictions in holding in-person meetings. However, we expect companies proposing such amendments to include a commitment that the exceptional circumstance for the virtual-only meeting format be disclosed at the time of convocation.
Amendments to Allow for Hybrid Meetings
Glass Lewis will generally support proposed amendments that would allow for companies to hold hybrid meetings. Nevertheless, we believe that shareholders would benefit from the inclusion of commitments regarding the participation of virtual attendees, as outlined above.
Amendments to Allow for Virtual Participation of Directors and Executives
Glass Lewis believes that, under normal circumstances, the virtual attendance of directors and top-tier executives at traditional or hybrid general meetings may serve to reduce accountability to shareholders and risks perpetuating the perception that companies are utilising emerging technologies to avoid uncomfortable conversations.
As such, we will generally recommend that shareholders oppose amendments to statutes that would allow for the virtual participation of directors and executives in general meetings unless:
- Virtual participation of directors and executives is explicitly limited to virtual-only meetings; or
- Where the amendment would also allow for the virtual participation of directors and executives in traditional or hybrid meetings, this is only permissible in exceptional circumstances and subject to prior approval by the board or meeting chair.
The spread of COVID-19 has necessitated a quantum leap in the digitalisation of the general meeting, which appears set to continue beyond the pandemic.
Glass Lewis believes that the increased use of digital technology in general meetings is long overdue and there are substantial opportunities for emerging technologies to advance shareholder democracy, increase attendance and participation, and ultimately improve the shareholder experience.
However. we are also mindful that, unless companies develop and disclose clear procedures to enable the participation of shareholders in the virtual meeting and allow for meaningful engagement with the board, developments in this space could lead to the disenfranchisement of shareholders.
As such, we are supportive of reform and progression, but will generally recommend that shareholders oppose change and escalate concerns against directors where companies have substantially failed to include safeguards to protect shareholders’ participation rights and ensure director accountability to shareholders, and/or failed to effectively communicate meeting procedures to shareholders.