In a world which is increasingly focused on responsible capitalism and environmental, social and governance (ESG) factors, the role of AGMs has never been more important. Climate change, diversity, supply chain issues, audit and assurance policies, and corporate culture are just a few of the issues that need to be discussed.
AGMs are—or at least should be—pivotal to achieving good corporate governance. They have a critical role when it comes to restoring trust in business and enabling companies to build back stronger as we progressively emerge from Covid and its consequences.
Yet institutional investors, who generally own over 90% of a listed company’s shares and most of whom preach the virtues of ESG investing, continue to be conspicuous by their absence from AGMs. They are rarely present to ask questions of boards, and their votes are filed well in advance of the AGM—so discussions there have minor impact on the accountability of boards. Attendances are largely low across the board, and many AGMs currently deliver questionable value to all participants.
AGMs and ESG issues
There is a time and a season for everything: Covid has shown us that the time is now ripe, if not overdue, to overhaul the AGM process to make it fit for purpose in a world where companies and investors increasingly make bold ESG claims. A good starting point is to revisit the purpose of the AGM and rebuild processes so that they are inclusive of stakeholders, directors and shareholders.
Earlier this year, responsible-investment campaigners ShareAction published a thought-provoking report about the future of the AGM. It sets out a bold new vision for the purpose of the AGM of the future and it addresses how companies, shareholders and stakeholders can play their part in making the AGM of the future the backbone of corporate governance and investor stewardship.
It proposes that the purpose of the AGM should be to provide a forum for stakeholders, companies and shareholders to engage in transparent, accountable communication, which crystallises how a company’s board is fulfilling its organisational purpose and its statutory responsibilities.
In the UK, these responsibilities are to promote the success of the company for the benefit of its members as a whole, while having regard to the interests of its employees and wider stakeholders.
ShareAction’s proposed new purpose puts stakeholders at the heart of the AGM of the future. After all, responsible capitalism recognises that stakeholders are a critical component to a company’s sustainable growth, and investors aiming to foster responsible business practices should be keen to hear and understand the views of stakeholders at first-hand.
Informed voting decisions
Bringing stakeholders into the room will make it possible for all participants to find common values and a shared vision with which to take the company forward to tackle the challenges it faces.
In a world of growing interconnected risks and rising engagement, this new purpose of the AGM will help companies to address their greatest challenges through nuanced dialogue with shareholders and stakeholders.
To deliver this purpose, ShareAction believes that the rhythm of engagement and communication has to change. It proposes a series of meetings with stakeholders throughout the year, an online Q&A provided in advance of the AGM to address clarificatory questions and equip participants for engaging and relevant discussions at the AGM event and, critically, that the annual shareholder vote take place only after the minutes of the meeting are shared.
This will enable all shareholders to use the discussions at the AGM to inform their voting decisions in a considered and better-informed way than is currently the case.
Vibrant forums
Institutional investors need to step up to the plate too. In future they should have robust and transparent policies to govern their attendance and, importantly, participation in the AGMs of their investee companies.
These policies could, for example, be based on companies where there are significant ESG concerns or where they hold more than, say, 3% of the issued share capital. To provide accountability, they should publish the names of the companies whose AGMs they have attended on their website and provide an account of their participation. To bolster these proposals, regulators should have clear guidelines as to their expectations and, if there is insufficient compliance, they should take appropriate and timely action.
As we collectively move forward to embrace responsible capitalism, the time is now ripe to grasp the nettle and start taking steps to reform AGMs so that they are inclusive and transformed from the often lacklustre, perfunctory and stage-managed events that are prevalent today. It is time to transform AGMs into vibrant forums where companies, shareholders and stakeholders can discuss and address, constructively and responsibly, the challenges and opportunities they face.
With the vast majority of FSTE 100 companies hosting virtual AGMs in 2021, it is clear that there is appetite for change. The ramifications of Covid make this a perfect time to take stock and think big. We call on companies, regulators, politicians and investors to be bold and make meaningful and enduring changes to AGMs that go beyond merely incremental changes in format.
Substance over form will be far more important when it comes to restoring public trust in businesses, and AGMs will be no exception.
Lily Tomson is co-chair of the Future of the AGM Working Group and the head of networks at ShareAction.
Michael Kind is coordinator at the Future of the AGM Working Group and campaign manager at ShareAction.
Guy Jubb is co-chair of the Future of the AGM Working Group, honorary professor at the University of Edinburgh Business School, independent non-executive at Mazars, and vice-chair of the European Corporate Governance Institute.