Investors have expressed their concerns about the prospect of virtual AGMs after reports surfaced that the government is working on new legislation that could green-light boards to stage their annual gatherings online only.

The International Corporate Governance Network (ICGN) was responding this week to reports in the Financial Times about provisions being included in the forthcoming audit reform bill. The provisions would clarify permission for companies to push ahead with online events that do away with in-person meetings.

ICGN is in favour of companies offering virtual or live participation as a minimum standard. Jen Sisson, chief executive of ICGN, says:

“The AGM is a key mechanism for corporate accountability. Fully virtual AGMs significantly limit the ability of shareholders, especially minority shareholders, to interact with boards and management, ask unmoderated questions, and make statements from the floor.”

Sisson adds: “Investors will want to understand the reasons why a company chooses to conduct a virtual AGM, which should be for emergency situations only.”

One other investor group told Board Agenda: “If meetings are virtual only then we oppose them.”

Is it legal?

The Financial Times reported this week that officials are considering provisions in a forthcoming audit and governance bill that would “clarify the legality” of virtual meetings.

The Companies Act 2006, section 360, says there is nothing to “preclude the holding and conducting of a meeting in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote on it”. The mention of “place” appears to imply a physical setting.

Virtual annual get-togethers have been technically possible for some time, but lockdowns during the pandemic saw regulators wave through boardroom decisions to take their meeting online. Since the lockdowns ended, the trend has been for “hybrid” meetings.

It was in March 2020 when the country was struggling with the first wave of Covid that the Financial Reporting Council (FRC) said companies should consider “live streaming” their AGMs online and, or, organising “online” Q&As.

Poor performance

A review by the FRC in October the same year found good practice and some bad, including 30 companies that appeared to make no arrangements for shareholders to ask questions either prior to, or during, their pandemic AGM.

Despite the poor performance of some corporates, the FRC concluded that there was mileage in virtual AGMs.

“The traditional approach to AGMs is a straitjacket to progression,” it concluded. By July 2022, the regulator had published guidance to “maximise shareholder engagement by embracing new technologies”.

That said, virtual AGMs fell out of favour as the pandemic eased.

Last month, law firm White & Case said its research showed 79% of FTSE 350 companies that have so far issued AGM notices had opted for physical meetings only, with 17% choosing hybrid gatherings.

Fully virtual meetings have so far been proposed by only two firms: the Bakkavor Group, a food manufacturer, and shipping company Clarkson plc.

White & Case said: “We foresee physical AGMs to remain the most prevalent type of AGM amongst FTSE 350 companies next year, with their head offices being the most preferred hosting venue.”

It is not yet known when the audit reform bill will emerge. It is expected to offer legislation on creating a new audit and governance regulator—ARGA— with boosted powers, possibly to sanction company directors for failure in their audit and reporting duties.

The new bill could also push through “managed shared audit”, a process in which a big audit firm uses a smaller, “challenger” firm for part of their audit work.

However, despite debate in the House of Lords, there is still no sign of the bill, with some in the sector speculating that it could be watered down from original expectations.