A Season Disrupted

For many of those in the governance profession, AGM season, the period between the second week of April and the penultimate week of May, is a time when holidays are discouraged and long hours are the norm. Whether you work in a company with a 31 December year-end, at an investor, or in one of the various third-parties on which those principals rely to deliver ‘their’ AGM, this will be a busy time for you.

Many companies have been planning their AGM for months. Venues and catering have been booked, documentation has been prepared, directors have been briefed, the chair’s script written and the annual report has finally been put to bed, not to be looked at again lest you spot the inevitable typo – probably something no-one else would notice, like the name of the chair or CEO. Company AGMs are slick, well-organised affairs, a tribute to the skills of our profession. But this year, just to make things that little bit different, we have a pandemic.

Institute Guidance

As COVID-19 spread throughout Europe, companies, especially those with an AGM early in the season, started to look at their contingency planning. As the situation worsened, the Chartered Governance Institute and the Financial Reporting Council discussed whether companies might welcome guidance on some of the key issues that they need to consider. We worked with Slaughter and May to draft some guidance and sought market support for its content. We were able to gain the support of the Financial Reporting Council, GC100 – the Association of General Counsel and Company Secretaries working in FTSE 100 Companies, the Investment Association and the Quoted Companies Alliance. The Department for Business, Energy and Industrial Strategy (BEIS) also reviewed the guidance.

Some of the content was straightforward. Checking relevant provisions of the articles of association (Articles) and coordinating with registrars and venue providers is key, as is ensuring that shareholders are kept regularly updated and are given the maximum opportunity to have their say. But every company is different and although the guidance offers suggestions reflecting UK company law and associated regulation, companies will need to consider their own individual circumstances, including their Articles and any other relevant matters.

So what are the options? Fundamentally, companies have five choices:

• adapt the basis on which the AGM is held
• delay convening the AGM, if notice has not yet been issued
• postpone the AGM, if permitted under the Articles
• adjourn the AGM
• conduct a hybrid AGM, if permitted under the Articles.

For 31 December year-end companies, the postpone or delay options would only grant a ‘stay of execution’ as s336(1) of the Companies Act 2006 provides that a public company must hold its AGM within six months of its accounting reference date – which means by 30 June. When the initial guidance was prepared, this seemed a more relevant option than it does now, although it may remain one for companies who need more time to get other arrangements in place, provided standing authorities will not expire in the meantime.

Adjourning the meeting is seen as something of a last resort, which should only be considered if the company has issued its AGM notice and does not have postponement provisions in its Articles, as a quorate meeting is generally required in order to enable an adjournment. However, the Articles will often permit greater flexibility, allowing, for example, for adjournment for lack of quorum. Again, the adjourned meeting must be held within six months of the company’s financial year end and so companies with a 31 December year end will have relatively little leeway.

Hybrid meetings – a combination of a physical and electronic meeting at which all attendees are able to see and hear each other – are, subject to authority in the Articles, valid in UK law and, even if a company with that authority has already issued its AGM notice for a physical-only meeting, it can change to a hybrid AGM. An announcement should be made to reflect this decision and the website should be updated. Companies conducting a hybrid AGM should make shareholders aware that they can participate fully in the AGM electronically. Virtual-only meetings are subject to some doubt as to whether they constitute a legal meeting and are therefore not advised.

All Change

When we published our original guidance on 17 March, the intention of many companies to whom we had spoken was to press on with their AGM in an alternative form, provided their venue was still available and people were still able to travel to the meeting. This, of course, all changed with the government’s compulsory ‘Stay at Home Measures’ published on 23 March and passed into law in England and Wales on 26 March, with immediate effect, in statutory instruments (2020/350 in England and 2020/353 in Wales) made pursuant to the Public Health (Control of Disease) Act 1984.The Stay at Home Measures included a ban on public gatherings of more than two people.

This obviously affects the way in which companies will need to approach their AGM and so we worked with Clifford Chance LLP, Freshfields Bruckhaus Deringer LLP, Linklaters LLP and Slaughter and May to develop supplementary guidance which was published on 27 March. Again, this was supported by the Financial Reporting Council, GC100, the Investment Association and the Quoted Companies Alliance, and reviewed by BEIS.

Our earlier guidance note made it clear that postponement of the AGM is an option, and that remains the case. However, given the uncertainty around the timeframe for resolving the current situation, companies will want to ensure that their AGM authorities are refreshed before they expire, and there may be companies that need to hold a general meeting on an urgent basis to approve a capital raising or other urgent transaction. It is therefore important that listed companies are able to hold a valid general meeting. In the light of the Stay at Home Measures, we have now suggested an approach for companies who do not wish, or are not able, to postpone.

Supplementary Guidance

The supplementary guidance looks at how companies can continue to hold their AGMs while the Stay at Home Measures are in force. Keeping people safe at this critical time is of paramount importance and chairs have broad common law powers that allow them to prevent shareholders and proxies from attending as they are responsible for ensuring the safety of attendees. The notice of meeting should clearly state that public gatherings of more than two people are not permitted and that anyone seeking to attend the meeting in person will be refused entry. Obviously, this applies even to hybrid meetings. Shareholders should be encouraged to vote by proxy and companies may want to encourage the submission of questions for the board of directors in writing. Ensuring that shareholders are kept regularly updated and given their right to vote is crucial and as the current situation is evolving on an almost daily basis, it would be prudent to warn them that a further announcement may be required. Companies should check their Articles and coordinate with registrars and venue providers in order to find a solution that works for them.

The supplementary guidance also offers advice on how to ensure that the meeting is quorate, who should chair the meeting, which directors will be allowed or expected to attend the general meeting and where to hold the meeting in the event of the announced venue being unavailable or otherwise inaccessible.

Communicate, Communicate, Communicate

This is a time of great uncertainty and companies and their directors will need to focus on making the critical decisions that will enable them to get through the period with least disruption. The government and regulators are keen that the board engage with investors and other stakeholders through the most appropriate channels. Shareholders’ views are important and companies should ensure that they are given as much information as possible in good time to enable them to participate in the decision-making process. The AGM is important for any public company, but at the moment the health of companies’ shareholders, workforce and officers is paramount. 

Encouraging proxy voting, the establishment of an online shareholder Q&A for the AGM and live streaming the AGM are all sensible measures to consider and companies may also choose to offer an opportunity for retail shareholders to engage with the board later in the year. A dedicated area on the company website should be established to provide shareholders with the most up-to-date information.

Watch this Space

Of course, this article is written on the basis of what we know now. By the time it lands on your doormat the situation may be very different. In late-February, I was at a meeting discussing the approach that institutional investors could be expected to take on remuneration issues this year; barely four weeks’ later everything has changed. Guidance that we published on 17 March had to be changed the following week.

On Saturday 28 March (we are, indeed, living in strange times!) Alok Sharma, Secretary of State for Business, Energy and Industrial Strategy, announced that “the government will introduce legislation to ensure those companies required by law to hold Annual General Meetings (AGMs) will be able to do so safely, consistent with the restrictions on movement and gatherings introduced to address the spread of coronavirus. Companies will temporarily be extended greater flexibilities, including holding AGMs online or postponing the meetings”. So there is more legislation to come and, by the time that you read this article, we may have seen it.

‘Greater flexibilities’ certainly sound very promising as I believe that it is flexibility that companies need at this time. The Institute will continue to engage with BEIS and will provide an update as soon as the new legislation is available either through a technical briefing or through our new Coronavirus hub at icsa.org.uk/about-us/coronavirus-update-from-the-institute where we are trying to gather all the information about Coronavirus and its impact on governance which we think might be helpful to members.

These are strange new times for us all and as the situation develops companies – led in this area by their company secretaries – will need to balance the need for pragmatism in the light of the COVID-19 outbreak against their legal and regulatory obligations and good practice. In my view, as a general rule, they cannot go very far wrong if they try to maximise the opportunity for stakeholder engagement within the facilities available to them.