Taking stock of virtual shareholders meetings Quarter 1 2021

By JOHANN PIEK, Published in COVID-19 Company Law

The long-awaited, large scale shift to virtual shareholders meetings (VSMs) has finally commenced. Granted, it took a once-in-a-lifetime pandemic to move meetings into cyberspace, but the metaphorical wheels have, at long last, been set in motion.

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Lessons learnt and fears realised

Several lessons were learnt during the 2020 annual general meeting (AGM) season, which proved to be a litmus test extraordinaire for VSMs. Electronic platforms utilised by South African companies held up remarkably well – save for a lone AGM at which sound "gremlins" were experienced. Shareholders and guests attending the VSMs also managed to navigate the often-complicated instructions to attend these meetings with relative ease. Overall, SA companies (and company secretaries, in particular) did a commendable job, considering the logistical uncertainties brought about by the lockdown level changes.

The VSM roll out was, however, far from flawless. Undoubtedly, the biggest concerns revolved around shareholder engagement and how the companies dealt with (or failed to deal with) shareholder questions. Irregularities reported during the 2020 AGM season included instances where:

  • shareholders were only afforded an opportunity to submit questions prior to the AGM, with no questions being accepted during the AGM;
  • questions submitted prior to and/or during the AGM did not elicit answers; and
  • management was perceived to "cherry pick" favourable questions or answer "company-generated" questions.

These issues were not exclusive to South African VSMs. In a review of the 2020 US proxy season, Professor Miriam Schwartz-Ziv of the Hebrew University of Jerusalem, found a general lack of transparency regarding shareholder questions asked at VSMs. In her research, she highlighted five tactics used by a number of S&P 500 companies to evade addressing shareholder questions. These tactics included:

  • misrepresentations that "no further questions had been received" where, in fact, the statement only applied to the questions received by management to answer at the VSM, and not to the questions which were not passed onto management;
  • undertakings to get back to shareholders on unanswered questions, but not following through;
  • the imposition of early deadlines to submit questions; and
  • shortening the time allocated for Q&A at the AGMs.

While management is under no obligation to answer shareholder questions, the obfuscation and evasion of shareholder questions does speak volumes about a company's approach towards shareholder relations and good corporate governance. Needless to say, certain shareholders were quick to voice their concerns where they felt their questions were altered, or even worse, disregarded.

Bettering best practices

The proliferation of VSMs saw several best practice guides being published by working groups across the globe. Locally, the non-profit shareholder activism organisation, Just Share, published a very useful best practice guide to assist SA companies with their virtual AGMs in 2020.

The following practices, which should be read in conjunction with the aforementioned guides, could serve as a useful starting point for SA companies persisting with virtual AGMs in 2021.

  1. Get Shareholders Online. Hassle-free. Instructions on how to attend, ask questions and vote at the AGM must be clear and comprehensible.
  2. Despite living in the digital age, not all shareholders are tech proficient. Have an allocated technical support line available from the moment the instructions are sent out until the conclusion of the AGM. The support line details should be included in the instructions, and be visible during every stage of the online login process.
  3. Prepare and upload a "rules of conduct" document onto the company website. This document should address important matters such as time allocated for questions, how questions will be selected, and when questions will be out of order.
  4. It's hard to follow the progress of a meeting electronically. Upload the AGM agenda onto the company's website in advance, or, at the very least, display it on the main meeting page, along with a marker keeping track of the progress.
  5. All AGM attendees need to be prepped on how and when to mute and unmute their electronic devices. Addressing this matter at the start of the AGM could spare serious embarrassment.
  6. The full board of directors should attend the AGM and make themselves visible once they are introduced by the chairman. Despite its digital nature, formal AGM etiquette needs to be upheld.
  7. Unlike "in person" shareholders meetings, shareholders are not able to have informal chats with management pre – and post-meeting. Add to this the fact that AGMs are often the only opportunity for shareholders to engage with management and it is thus essential that sufficient time be allocated for shareholder questions and engagement.
  8. Shareholders should be able to submit questions to the company prior to the AGM. Make a facility (like an investor page on the company website) available to receive and answer questions before the AGM. This will not only give management a feel for the type of questions to expect at the AGM, but also an opportunity to display their commitment to transparency.
  9. Post the questions asked and answers given at the AGM on the investor page of the company's website after the AGM.
  10. Hearing is not seeing. Non-verbal cues such as eye rolls, head nods and a shrug of the shoulders often speak louder than words. For a company to truly make the VSM inclusive, it needs to make provision for video.
  11. Most importantly, companies should continue to operate within the confines of the law. Companies need to ensure that the electronic communication employed enables all participants to communicate concurrently with each other without an intermediary, and to participate reasonably effectively in the AGM. Furthermore, AGMs of public companies must afford shareholders the opportunity to raise matters at the AGM, with or without advance notice to the company.

Will 2021 be the "make or break" year for VSMs in South Africa?

The emergence of the second wave of COVID-19 will likely force SA companies to continue with VSMs for the foreseeable future. This will, in turn, present a golden opportunity for companies to allay the VSM-related concerns raised by shareholder interest groups in 2020 and, ultimately, to realise the many benefits that VSMs currently present. However, only time will tell.

Piek writes in his personal capacity.