Update: Financial Reporting Council’s Guidance on Best Practice for AGMs

The Financial Reporting Council (FRC), the body responsible for the UK Corporate Governance Code, published a report on 6 October 2020 (available here) of how, in light of the impact of COVID-19, AGMs were carried out during the first half of 2020 and whether the approaches taken best served the interests of shareholders (the Report).

The Report, and an accompanying best practice guide, was produced by the FRC by undertaking desk research of AGM notices and discussions with stakeholders (all of whom had an interest in AGMs).  Below is a summary of the key points of the Report and the best practice elements you may wish to consider for future AGMs.  If companies choose to follow some of the suggested best practices, they will need to take steps well in advance of the usual preparation time for their 2021 AGMs.

AGMs in 2020

The Report grouped the 2020 AGM approaches taken by companies into 3 categories:

1.  “Closed” meetings with a quorum in attendance

Shareholders were either not offered the opportunity to ask questions (prior or during the meeting) or were invited to submit questions in advance (with some or all answers posted on the company website).

2. Meetings with some shareholder engagement

Board members were available on the day of the meeting to present company information (via audiocast or webcast) and the shareholders were able to submit questions prior to meeting (with a selection answered during the meeting and the remainder on the company’s website).

3.  Meetings with more shareholder engagement

Shareholders were able to engage virtually with the board members on the day of the meeting.

Shareholders in categories one and two were asked to vote in advance via a proxy, whereas category three was characterised by shareholders being able to vote on the day via a voting app.

The Report’s sample of 202 AGMs found that 163 companies held “Closed” meetings and 30 that held open meetings.  This is unsurprising given the unprecedented nature of this year’s AGM circumstances that companies grappled with.

The FRC found that shareholder’s rights were best served by companies which provided highly effective and clear communication (before, during, and after the meeting) and allowed full participation either by attending in person or virtually.

Best practice guidance for AGMs

With restrictions on public gatherings and the movement of people now appearing increasingly likely to continue into (at least) the next AGM season, what actions does the FRC recommend that you take now in preparation?

• Technology: Consider significantly increasing the use of technology to allow robust virtual interaction during an AGM.  This flexibility should provide shareholders with greater access and gives them an opportunity to hold the board to account.
• Electronic communication: When shareholders purchase shares, consider requesting a contact email address from each shareholder and that they agree to respond to requests to move to electronic communications where possible.
• Engagement: Ensure that shareholders have the ability to hear from the board prior to voting on any resolutions.  Therefore, companies should make every effort to put in place a system that allows shareholders to vote following presentations of the board.

In addition to implementing new technology and the ability for shareholder’s questions to be submitted and answered, companies should review their articles now in order to consider whether any provisions need amending prior to the next round of AGMs to allow for hybrid or fully electronic meetings.

A number of the suggestions in the Report will require further thought and consideration as they will not suit all companies.  The FRC acknowledges what is suitable for individual companies will depend on their own circumstances and shareholder basis.

Should you wish to discuss steps to take in preparation for your next AGM, or require further information about anything covered in this note, please contact Peter Kohl, Joan Yu, Arthur Horsfall or your usual contact at the firm.

This briefing is a general summary of the information contained in the Report and it should not replace legal advice tailored to your specific circumstances.

Originally published at Kermanco.com prior to the firm’s combination with Armstrong Teasdale in early 2021.