9 November 2020
Virtual annual general meetings suit firms but leave concerned shareholders out of loop
This article, written by Greer Blizzard, was originally published in the Business Day on 9 November 2020.
Companies Act provides for electronic-only meetings but more guidance is needed from regulators on minimum requirements.
Holding annual general meetings in the time of Covid-19 has been somewhat less of a scramble for JSE-listed companies than for those in many other jurisdictions. This is because our Companies Act already provided for virtual- or electronic-only meetings, so there was no regulatory hurdle to overcome to be able to use this format during lockdown.
But for all the advantages virtual-only annual general meetings offer in these unprecedented times, it has become clear that the format is riddled with shortcomings, and that regulators such as the JSE and department of trade, industry & competition must intervene to protect shareholder rights.
Some companies that have held virtual annual general meetings in the past six months have clearly contravened the Companies Act. Many have made little attempt to ensure shareholders are able to participate in the meetings effectively, or shown scant respect for their experience.
Section 63(2) of the Companies Act allows an annual general meeting to be conducted entirely by electronic communication, provided that “all people participating are able to communicate concurrently with each other without an intermediary, and to participate reasonably effectively in the meeting”.
The epitome of the many breaches of this provision over the past six months was Zeder Investment’s annual general meeting. Shareholders were reportedly warned early on in the meeting that questions would be moderated and those deemed “not that appropriate” would not be aired. This was compounded by the use of an inadequate technology platform that left several shareholders unable to access the meeting until halfway through. It is remarkable that no shareholders have publicly challenged the legal status of the meeting. More worrying is that regulators appear unconcerned.
The power imbalance between company and shareholders is evident well before a virtual annual general meeting begins. A number of service providers offer online meeting platforms. Some are more user-friendly than others, but each provides the companies using their platforms with leeway to determine the nature and extent of shareholder engagement during the meetings.
As a result, shareholders are presented with a smorgasbord of formats across the various annual general meetings. There is no uniformity as to when questions from shareholders will be heard, how much time is allocated to questions and answers, whether questions can be submitted verbally or in writing only, whether guests are allowed to participate, and whether the board and executives of the company are visible, on camera, to the shareholders attending the virtual meeting. It is seldom clear which board members are even present.
The variations and lack of predictability in format make it particularly difficult for shareholders to participate effectively. There has been no guidance from regulators, and as a result many corporate boards have taken the opportunity to deploy virtual annual general meetings as a shield to protect themselves from challenge or debate.
Kumba Iron Ore tried to limit questions by informing shareholders in its notice of annual general meeting that voting would take place before the meeting, and that shareholders were required to submit questions in advance to the company secretary. When challenged by a concerned shareholder, the company relented and allowed real-time voting and written questions during the meeting.
At Santam’s annual general meeting, shareholders who logged on a few minutes before the official start of the meeting were treated to a conversation in which one of the directors, not realising she was audible, made disparaging comments about the imminent proceedings.
At Naspers’s annual general meeting, written questions from shareholders were read out inaccurately by the company secretary, rendering them difficult to understand. This has been a frequent feature of virtual meetings: when a question is read aloud by someone who is seeing it for the first time, emphasis and meaning are frequently lost.
Investec takes the cake when it comes to disregard for shareholders attending its annual general meeting. No human being was visible for the entire meeting. All that shareholders could see was a static screen containing the company’s logo. The question-and-answer session was held within minutes of the start of the meeting, and was conducted so fast that a number of written questions from shareholders only appeared on the online platform after the session had ended. This was out of shareholders’ control due to the delay between submitting a question on the platform and its appearance on the company secretary’s screen. Those questions were ignored by the board.
Furthermore, Investec shareholders were subjected to 15 minutes of elevator music while voting took place, and were then left to assume that the meeting was over when no-one from Investec “returned” to the meeting, even to announce that it had ended. If these were merely unfortunate glitches, it would not be unreasonable to expect the company to communicate as much to shareholders after the meeting. It never did.
Old Mutual was one of the few companies that provided shareholders with any unmoderated engagement with the board. Verbal questions were permitted, and answered in detail by chair Trevor Manuel, who was visible on camera throughout, as was the company secretary. The organisation has had a challenging year, and Manuel is to be commended for not using the virtual format as an excuse to dodge questions from concerned shareholders.
Overall, it is difficult not to suspect that the Covid-19 lockdown was used by many boards to arrest some of the progress made in annual general meeting participation over recent years, where shareholder activism has shifted meetings from stuffy, closely choreographed, uneventful three-minute events to opportunities for more meaningful engagement. As the only event in a company’s annual calendar that allows shareholders to engage with the board, the annual general meeting plays a crucial role in effective corporate governance.
This annual general meeting season has revealed both the benefits and drawbacks of a heavy reliance on technology as a replacement for in-person human interaction. With six months’ experience under our belts, there is little doubt that hybrid meetings — which shareholders can choose to attend either in person or virtually — must be the way of the future as soon as it is safe to do so.
In the meantime, we need guidance from regulators on the minimum requirements for virtual-only annual general meetings, and some respect for shareholders’ rights from the companies that host them.