A shareholder advisory group has warned government that pushing ahead with virtual-only annual general meetings would risk allowing boards to avoid scrutiny.

The warning, from ShareAction, comes after the government announced support for virtual AGMs as part of a raft of measures designed to reduce the burden on business.

Luke Hildyard, head of UK policy at ShareAction, says: “We should be extremely wary of AGMs that are conducted exclusively online with no in-person element.

“This makes it much easier for boards to manipulate the agenda, ignore questions and avoid scrutiny to the ultimate detriment of good governance.”

Government announced changes on Monday as a part of a “growth package and red tape review”. The statement from Peter Kyle, the UK’s business secretary, included scrapping the audit reform bill and added it was “pressing ahead with plans to allow virtual AGMs”. There are also plans to streamline corporate reporting.

ShareAction is not the only body to raise concerns about virtual-only AGMs. When news emerged last year that the government had the policy under consideration, the International Corporate Governance Network (ICGN), raised its own red flag.

Jen Sisson, ICGN chief executive, said: “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.”

‘Emergency situations only’

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

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…”. The mention of “place” appears to imply a physical setting.

Since the Covid lockdowns, the trend has been for hybrid meetings. It was in March 2020, as the pandemic was taking hold, that the Financial Reporting Council, the UK’s governance watchdog, said companies should consider “live streaming” AGMs or running “online” Q&As.

Research last year from law firm White & Case showed 79% of FTSE 350 companies had opted for an entirely physical meeting “without any form of electronic engagement”. Hybrid meetings accounted for around 17% of the FTSE 350.

White & Case said reasons given for the virtual-only meetings were to “maximise shareholder engagement, reduce the environment impact of the AGM and provide shareholders with convenient access to the meeting.”

The full details of the government AGM proposed are yet to emerge. Shareholders and governance specialists will be keeping careful watch.