While it is difficult to anticipate the practical effects of the continued spread of novel Coronavirus (“COVID-19”) in the UK, the potential for government-mandated restrictions on travel or public gatherings, combined with quarantine or self-isolation measures, could impact UK public companies’ plans in respect of this year’s annual general meeting (“AGM”), given that UK public companies are required under the Companies Act 2006 (the “Act”) to hold their AGM within six months of their accounting reference date. While some companies may already be authorised by their articles to hold this year’s AGM as a hybrid meeting (where shareholders are permitted to participate online), those companies intending to hold physical meetings this year may need to consider the feasibility of making alternative arrangements.
In the United States, Starbucks recently announced that it will hold a virtual-only AGM this year to avoid the potential health hazards of gathering large groups of people while COVID-19 is spreading. In Spain, Banco Santander and BBVA have also encouraged their shareholders to participate in this year’s AGM remotely.
Virtual-only meetings are those with no physical element, whereas hybrid AGMs combine both a virtual and physical element. A virtual meeting is a relatively new concept which has generally found greater acceptance in Europe and in some parts of the United States than in the UK, where Jimmy Choo’s AGM in 2016 is the sole example of a quoted company holding a virtual-only AGM.
Why have virtual-only meetings not caught on in the UK? There are technical legal reasons, but also there has been resistance from investor bodies. The Investment Association (the “IA”), in its position statement originally published in December 2017, recommends that virtual-only AGMs should be resisted on the basis that: (1) the accountability of boards to shareholders is removed due to the remoteness of meeting participants; (2) participants might find it more difficult to ascertain the views of other meeting participants or register their agreement or disagreement; and (3) boards risk giving the impression that they want to filter or exclude shareholder questions or participation.
The IA, whose members make up a large proportion of the UK public company shareholder base, has indicated that its members would not support amendments to articles of association that allow for virtual-only AGMs, and that where any amendments are made to allow for hybrid AGMs (which combine both a virtual and physical element), companies would be expected to confirm that a physical meeting would be held alongside the virtual meeting element. The IA also warned that its voting information service would red-top any company that decided to alter its articles to provide for the ability to hold virtual-only AGMs. This guidance reflects the prevailing view of generally accepted good practice for UK listed companies.
In contrast, hybrid meetings are uncontroversial in the UK. For example, Institutional Shareholder Services (“ISS”) is in favour of increased electronic access to company meetings, on the basis that it can increase shareholder participation and engagement. ISS commented in its 2018 EMEA Proxy Voting Guidelines Updates that, with improving technology, hybrid meetings in the UK could become standard good practice.
Given the present situation with regard to COVID-19, many shareholders will want to avoid attending an AGM in person, preferring (at least for this year) to participate remotely using online voting. Government restrictions could leave electronic means as the only way, in practical terms, that a shareholder may participate. In Switzerland, Sherpany, a technology firm which hosts online voting platforms for AGMs, has recently reported an increase in demand for its services, not least due to the restrictions on public gatherings that have been imposed by the Swiss government. While such restrictions have not, at the time of writing, been imposed in the UK, if the situation deteriorates it may be difficult, if not impossible, to hold large physical AGMs in the near term, with companies with a large retail shareholder base (who frequently attend in greater numbers in person, rather than by voting by proxy) being affected the most.
If a company’s articles already contain authority to hold a hybrid meeting, directors could consider mitigating the risk of spreading COVID-19 by using, say, a meeting room within the company’s offices as the physical place of the meeting, which the directors would attend (assuming in the case of leasehold office premises that this is permitted). Shareholders could be recommended to participate remotely by electronic means that enabled them to see, hear, and be heard and seen, at the physical meeting. Shareholders could also be encouraged to submit questions beforehand, by way of either email or through a company Q&A website, and to vote ahead of time by way of proxy or through proxy appointments.
Amendments to articles
While some UK public companies already have the requisite provisions in their articles, most companies do not.
If the company’s articles do not contain relevant enabling provisions, it might not be possible to make this year’s AGM a hybrid AGM, but directors could consider whether it would be in the company’s best interests to propose amendments to the articles to enable participation in a hybrid AGM in the future should similar circumstances arise or persist. When deciding whether to propose amending the company’s articles to cater for hybrid meetings, directors must consider, amongst other things, whether it is in the interests of the company for an AGM to be held in part virtually.
If a company does plan to hold a hybrid AGM, it should ensure that it has the technological capability to do so. As with a physical AGM, arrangements should be made to ensure that shareholders can participate in the business of the meeting fully, including arrangements with its registrars to enable electronic voting and advance proxy voting facilities.
Directors should also consider how the chairman will control the meeting, how presentations will be communicated and how any documents required to be available for inspection at the meeting can be made available if recommending to shareholders that they should attend virtually if possible. Web-based conferencing systems frequently include the ability to share documents or presentations on a screen with conference call participants, and that may be a cost-effective solution. Whatever the platform used, it is important that member participation can be contemporaneous, allowing members to debate, interrupt proceedings or raise points of order at any time during the meeting, and allowing the chairman to react to issues as they occur.
The technology being used will also need to operate effectively across the range of different technology platforms that members might use, such as desktops, tablets or smartphones, and should be accessible for attendees who may have differing levels of technical expertise, as well as a way to verify the identity of participants. A secure app, like the one used in the Jimmy Choo virtual-only AGM, may be an option.
Logistical and other considerations
Where companies are unable to hold a hybrid AGM this year or have already planned and given notice of a physical AGM, directors should ensure they have considered what powers they have in relation to any last minute delays or adjournments to the meeting which might be out of their control – for example, as a result of the escalation of government restrictions. For instance, large venues booked for a physical AGM may be subject to temporary closures at short notice if a confirmed COVID-19 case is discovered prior to the meeting.
As well as the latest date to hold their AGM, companies must keep in mind the expiry date of their current standing shareholder authorities, for example in relation to the allotment of shares and the disapplication of statutory pre-emption rights; as well as provisions in the articles requiring certain events to happen at an AGM such as a requirement for directors to retire by rotation. Where a company’s articles require retirement by rotation, and the company fails to hold an AGM by the last date on which it could have been held, some or all of the company’s directors could be deemed to have retired as at that latest date, even though the AGM was not held. Where this may be the case, directors should ensure that enough directors will remain in office if the company is unable to hold its AGM by the requisite time, or otherwise arrange for temporary new appointments to be made pending elections at a later shareholder meeting.
Notices of AGM
If a hybrid AGM is planned, the AGM notice should include sufficient information to enable shareholders participating electronically to be clear as to how they may attend, speak and vote. If relevant, shareholders participating electronically should be made aware of any discretion the chairman has to treat the meeting as continuing despite any technological failure, reminding them that the risk of losing their voice and vote in this way could be mitigated by voting in advance by proxy and by submitting questions prior to the AGM.
If a company has already despatched its AGM notice and is expecting shareholders to attend in person, directors should ensure they continue to monitor the COVID-19 situation, including any government guidelines or restrictions.
Should the situation in the UK deteriorate, it might be prudent to issue an announcement by way of the company’s regulatory information service, and also on the investor relations section of the company’s website, to encourage shareholders:
to consider the advice of the government, the NHS and Public Health England (or equivalent body) when deciding whether to attend the meeting in person;
where possible, to participate in the AGM remotely (if this is permitted by a company’s articles);
to vote by proxy to ensure their vote is counted without having to attend the AGM in person; and
to submit any questions they may want to raise at the meeting ahead of time to a designated email address or through the company’s website.
Any such announcement should give details of the remote access method by which shareholders may hear or watch the meeting, such as, for example, log-in details for an online conference call facility or a web platform on which the meeting can be live-streamed. Unless a company has authority to hold a hybrid meeting and the facilities to allow for electronic voting, the announcement should also make clear that shareholders’ formal participation for the purpose of the meeting will be by way of proxy votes cast or questions submitted prior to the meeting, and that the remote access arrangements are for information purposes only and do not constitute formal participation in the meeting.
While at the time of writing there is no government guidance in respect of the relaxation of statutory rules or deadlines owing to the continued spread of COVID-19, it may be the case that any government-mandated restrictions in the UK could be accompanied by a future relaxation of certain statutory rules. Until such time, companies should ensure they are preparing for this year’s AGM on the basis that it must happen within the current deadlines and, where necessary, take specific advice from their legal advisers and registrars, as appropriate.
If you would like to discuss any of the above, please contact James Parkes or your regular CMS contact.