Online-only meetings the key to solving ‘dysfunctional’ AGM format.

    Australian companies continue to drive innovation in annual general meeting content and format. But the changes to date are unlikely to arrest a long-term decline in meeting attendance. A faster move towards hybrid, and virtual, AGMs may be needed.

    So far, the talk about hybrid AGMs, which combine on-line meeting participation with traditional in-person shareholder meetings, is not matched by widespread action. Share registry Link Group held the first true hybrid AGM for an ASX 200 company incorporated in Australia about 12 months ago. The Australian Shareholders’ Association successfully ran a hybrid AGM this year.

    Many listed companies allow the public to watch a video broadcast of their AGM or hear audio. But that is a long way from true hybrid AGMs where shareholders directly vote on resolutions from their home, office or on a mobile device, or ask questions of the board via online platforms in real time.

    Global take-up of virtual AGMs is also frustratingly slow. Virtual AGMs are online meetings only (there is no physical event for shareholders to attend).

    Although the first virtual AGM in the United States was held in 2001, adoption rates of this meeting format are only starting to increase globally, says Computershare in its recent white paper, ‘The Future of Shareholder Meetings is Virtually Here’.

    Suffice to say, international adoption of true hybrid or virtual AGMs is small in the scheme of things, given the benefits of technology-driven AGMs. Australian corporates, understandably, have taken an incremental approach to AGM innovation.

    There are good reasons for caution. Hybrid AGMs may not suit retail investors who lack technology resources or skills to participate in online meetings, or who prefer traditional meetings.

    There is a perception that hybrid AGMs could help boards avoid tough questions in controversial meetings and that something is lost when shareholders do not see directors in person and have an opportunity to gauge their body language and responses.

    Many boards feel that the accountability that comes from ‘eyeballing’ directors and management is highly valued by retail shareholders, and are understandably reluctant to lose this engagement.

    These and other concerns have created opposition in the US towards virtual meetings, and a mixed response in Australia. The Council of Institutional Investors in the US has taken a stand against virtual AGMs; it supports hybrid AGMs that offer the option of physical meetings.

    A recent Institutional Shareholder Services (ISS) survey, as reported by Computershare in its white paper, found several institutional investors support hybrid meetings, but not virtual ones. Other respondents said they would support virtual meetings that replicated the outcomes of physical meetings.

    Hybrid AGMs would be a positive development in Australian governance. But they do not solve underlying problems in AGMs for companies, boards and investors.

    For a start, hybrid AGMs still require a physical meeting to be held. The cost of dual-channel AGMs can be prohibitive for smaller companies, particularly those that need to invest in extra technology resources to provide video or audio webcasting, or on governance resources to ensure their hybrid AGM is compliant.

    Also, there is no evidence that hybrid AGMs have sparked a big turnaround in overall meeting attendance. Link’s online AGM attracted twice as many attendees as its physical meeting, according to a 2016 Australian Financial Review report. But it’s not clear that total attendance at hybrid AGMs will be higher; the option of an online meeting might reduce attendance at the physical meeting.

    Moreover, dual-channel meetings potentially increase AGM risk. Webcast technology can cause delays in AGM transmission that create uncertainty in the meeting’s Q&A session and voting segments. Companies must ensure both channels for their AGM delivery are in sync, meet legal requirements to conduct the meeting, and provide reasonable access for all shareholders.

    I believe hybrid AGMs are a partial solution to reinvigorating AGMs. In my view, Australian corporate law needs to support virtual AGMs and the governance community should embrace this meeting format – and the increased direct participation it can offer to shareholders, large and small.

    The US, United Kingdom (based on legal interpretation), Spain, South Africa, New Zealand, Ireland, Denmark and Canada permit virtual AGMs, according to Computershare research. Australia allows hybrid AGMs (based on legal interpretation) but does not permit full virtual AGMs. Australian corporate law requires a physical AGM to be held for public companies.

    Virtual AGMs could offer cost savings for listed Australian companies, remove geographic and physical barriers for attendance, allow institutional investors to attend more meetings on the same day and encourage shareholders to ask more questions and allow direct voting. Of course, they eliminate the need for a costly physical meeting that is barely attended.

    Done well, virtual AGMs can reinvigorate a tired meeting format. The AICD Director Sentiment Index shows over a third of directors believe the current AGM format is dysfunctional. Change is needed.

    A 2015 Computershare survey found fewer than 1 per cent of shareholders attended AGMs and less than 5 per cent voted. Anecdotally, AGM attendance continues to fall. Criticisms persist that too many AGMs are boring, long-winded and procedural.

    Moving to dual-channel AGMs that have video and audio-casting, and real-time online questions and voting, will not solve all of these problems. Nor will they help companies prepare for a future that involves a sharp increase in millennial investors (roughly aged 25 to 34) who have grown up with technology and embrace online communication.

    Hybrid AGMs do not fit the growing globalisation of financial markets. It makes no sense if investors can attend virtual meetings in the US and New Zealand, but require physical attendance for many Australian AGMs. If our companies want the widest possible audience of investors, they cannot afford outdated AGM formats.

    Don’t get me wrong: I believe in the value of AGMs, regard them as a cornerstone of good governance and am eager to see their revitalisation. An effective AGM helps retail investors make informed decisions, have their say as a shareholder, and feel closer to their company. AGMs also help management and the board better understand the company’s owners. But in my view, that does not mean AGMs should continue to be offered in a physical format, to appease a shrinking group of investors.

    I’m not proposing physical AGMs end en masse. Every company is different. If enough shareholders find value in a company’s physical AGM, of course the meeting should continue. Rather, the company should have the option to do away with a costly physical AGMs if it is clear the vast majority of its shareholders no longer values that meeting format. My fear is the governance community sees hybrid AGMs as the solution and takes too long to push for widespread adoption of virtual meetings. As with so many technology innovations, once shareholders experience the change, they embrace it. That will be true of virtual AGMs.

    One day, shareholders will wonder why they were tortured with physical meetings that required going into town and excluded many shareholders, by virtue of the meeting’s location. Or why companies wasted so many shareholder dollars on meetings that fewer investors show up to each year.

    Watching AGMs on your mobile and voting on resolutions online will be the norm. The future for AGMs cannot come soon enough.

    • Computershare, “The Future of Shareholder Meetings is Virtually Here,” Sep 2017.
    • Durkin, P., “Dying AGM is Virtually Reborn,” Australian Financial Review, December 2016.
    • Computershare, “Intelligence Report: Insights from Company Meetings Head in 2015,” March 2016.

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