A company's AGM is one of the highlights of the financial calendar. Although attendance varies considerably between companies, the London market continues to value the opportunity to meet with, and question, the Board on an annual basis. The current, and possible future, guidance and restrictions on public meetings in the context of COVID-19 presents a new challenge for listed companies, particularly in relation to the impending AGM season.
Should you postpone your AGM?
London-listed UK PLCs must, as a matter of company law, hold their AGM within six months of their year end. So companies with a calendar year end must hold their 2020 AGM by 30 June 2020.
The AGM Notice must be given on not less than 21 clear days' notice and the FRC's Guidance on Board Effectiveness includes a further requirement that at least 20 working days' notice is needed for premium-listed companies.
Beyond that, the level of flexibility companies will have in relation to holding their AGM will largely be dictated by the provisions of their articles, so reviewing your articles and considering the options you then have should be the fundamental first step taken.
Some listed companies, like Rio Tinto and Domino's Pizza, are stating in the AGM Notice that they are monitoring the situation and will provide an update. In particular, they highlight that if it becomes necessary or appropriate to make alternative arrangements for the holding of the AGM due to COVID-19, they will give as much notice as possible to shareholders via an RNS announcement. This is a prudent approach generally and will be especially helpful if a company decides to postpone/adjourn to a later date, which (if permitted by their articles) they will be able to do provided that the AGM is nevertheless held by 30 June. Note that at any adjourned AGM the business to be dealt with must be the same as that set out in the notice of the original AGM.
Ultimately, however, there is no dispensation not to hold the AGM by 30 June, so companies need to consider the best approach to ensure the AGM goes ahead despite travel and meeting constraints.
Can the AGM be held virtually?
Over recent years, a number of companies have amended their articles to provide for the possibility of their AGM to be held virtually and/or for a "hybrid" AGM to be held whereby there is a physical meeting but shareholders are also able to attend virtually.
In 2016, Jimmy Choo held the first virtual-only AGM of a UK listed company. No other FTSE350 company has done the same but it inspired a greater number companies to amend their constitutional documents to allow for the possibility of general meetings to be held electronically in the future.
In our view, a virtual-only AGM is problematic for a UK listed company as a matter of English company law. In addition, investor guidance is clearly not supportive. For example, the ISS 2020 Proxy Voting Guidelines indicate that ISS will generally recommend a vote in favour of proposals to amend articles to allow a company to hold "hybrid" shareholder meetings but will generally recommend a vote against any proposals to amend articles to allow a company to hold virtual-only meetings. The position statement published by the Investment Association on 11 December 2017 takes a similar line.
In 2019, both Marks and Spencer and Equiniti successfully held hybrid AGMs and even before the COVID-19 situation arose a number of other companies were already exploring the possibility of holding hybrid AGMs either in 2020 or in subsequent years.
For those whose articles allow, a hybrid AGM may make sense if your AGM is generally well attended. The technology is now well proven and many investors may in any case prefer the convenience of being able to join remotely.
Dealing with a "lockdown"
If there is a Government-mandated "lockdown" restricting gatherings above a certain size, restricting travel and/or requiring self-isolation of individuals meeting certain criteria, this may present challenges for an AGM. If the lockdown period is limited and still allows for the AGM to be held prior to 30 June, companies may consider adjourning the AGM so that it takes place after this period. If, however, that were not to be possible, key issues to consider would include:
- Ensuring that a quorum will be present at the AGM - this should be achievable by highlighting the ability of shareholders to appoint proxies.
- If the Chair is unable to attend the AGM then (subject to the articles) it should be possible for those shareholders attending to elect an alternative chair.
- If the intended venue for the AGM ceases to be available, it should be possible to change the location of the meeting, this would need to be announced via RNS and if possible someone should also be available at the original venue to redirect shareholders to the new venue, the Chair should make appropriate allowances in terms of the timing to accommodate this.
- If the registrar is unable to attend physically, we understand that they can still fulfil their role remotely but you should discuss this with your registrar. This can include by: (1) sending shortly in advance of the AGM the full register of shareholders so someone physically at the venue can then check them off against attendees; (2) being available by phone to sign in any attending shareholders; and (3) having poll cards scanned to the registrars to process.
- Where the mandated "lockdown" limits attendance numbers, shareholders should be encouraged to submit proxies rather than attend, ultimately they would then need to be admitted on a "first come first served" basis until the maximum is reached, but the company should attempt to find overflow facilities whereby any additional attendees could then attend from the overflow location.
Other steps companies might consider taking to mitigate risks at AGMs include:
- Encouraging shareholders to submit proxy votes as early as possible even if they intend to attend the meeting in person in case they are not able to attend in practice. HSBC is one company that has given this message to its shareholders.
- Where the meeting is to be held as a hybrid meeting, encouraging shareholders to attend virtually instead of physically.
- Limiting adviser and employee attendance to keep numbers down.
- Considering alternative ways for shareholders to submit questions in advance to the Board. Crest Nicholson is one company that has confirmed it is considering this.
- Making a fuller announcement than normal of any matters discussed at the AGM. If questions have been submitted in advance, the announcement could include answers to those questions, or a link to a section of the company's website containing the questions and answers.
- Holding a separate "shareholder engagement" meeting after any COVID-19 related restrictions have been lifted. Whilst this meeting would not address any of the formal business of the AGM, it would give shareholders the opportunity to engage with the board on the issues they may otherwise have been minded to raise at the AGM.
Should companies propose a resolution to pay a dividend?
As a final point to consider in the current circumstances, companies are keeping their financial position under close review and some are asking whether it remains appropriate for the board to recommend at their AGM a resolution to pay a final dividend. If prior to sending out their notice of AGM a company's board concludes that it definitely should not recommend a final dividend (when the market may otherwise be expecting it to), the company should not include that resolution and should release an RNS explaining their rationale. In many cases, however, the company will at the time the AGM notice is being sent still be minded to recommend the payment of a dividend, but will be mindful of the risk that the company's financial position may deteriorate by the time of the AGM. It is important to note that a final dividend creates a legally enforceable debt obligation on the company only at the time at which the AGM resolution is passed. If between the date of publication of the AGM notice and the date of the AGM the board therefore becomes concerned that it would not be prudent to pay a dividend at that time, the board could seek a motion to withdraw the AGM resolution at the AGM Withdrawing the dividend resolution would require 1) an announcement via RNS that the resolution no longer has the board's recommendation and they intend to withdraw it and 2) the passing of a motion at the AGM in accordance with the company’s articles to withdraw the resolution. At the time of the withdrawal the board could state that, subject to being able to do so, the company will look to pay an interim dividend if and when possible.