The Advent of a Covid-19 Legal Regime for Virtual AGMs: A New Vista of Technological Corporate Accountability to Shareholders

Deirdre Ahern, Trinity College Dublin

 

Introduction

Companies’ annual general meetings (‘AGMs’) function as an important tool of shareholder accountability. One of the challenges companies around the globe have been grappling with is how to hold AGMs while Covid-19 restrictions are in place while also respecting shareholder rights of participation in so far as possible. However, for Irish companies whose constitutions did not provide for electronic meetings, this has proven difficult to navigate for the 2020 AGM season, leading both to companies postponing AGMs and to AGMs being held behind closed doors. These were not ideal options but understandable given that the legal environment was not adaptable enough to provide solutions that would legitimise companies conducting online AGMs.

Following calls by stakeholders, including the Institute of Directors, for legislation to put the legality of virtual AGMS beyond doubt, the Department of Business, Enterprise and Innovation published Heads of a Bill in July. The Bill moved expeditiously through the Houses of the Oireachtas and the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 was signed into law on 1 August 2020. This emergency legislation functions as a temporary enabling piece of legislation providing stopgap measures to provide sufficient flexibility to Irish companies around holding AGMs while social distancing measures are in place.

 

The Challenge of Holding AGMs with Social Distancing Protocols

In these times where minimising the risk of the spread of Covid-19 is paramount, physical AGMs where shareholders attend give rise to social distance challenges and risks. Before the enactment of this legislation, the ability to appoint proxies to attend and vote and speak on shareholders was a solution, but an inadequate one (and one not to be encouraged on public health grounds). Appointment of a proxy who can vote on a shareholder’s behalf does not replicate the full experience of attendance in person at AGM by a shareholder or remote attendance.

The temporary addition by the 2020 Act of relevant provisions to the Companies Act 2014 will tackle the pressing problem of companies not having provided in their Constitution for the electronic holding of AGMs with remote attendance by company shareholders. The commercial community now has a blueprint for conducting virtual meetings. Notice of an electronically held company meeting will need to specify the methodology of participation (the electronic platform to be used for the meeting) instead of the usual specification of the place of the meeting. This will also ensure that formal quorum requirements for a valid meeting are satisfied without the need for physical presence.

 

Shareholder Democracy in the New Era of Virtual AGMs

One of the biggest issues with use of electronic platforms for AGMs is around whether sufficient means of participation are provided. Earlier this year a High Court challenge was initiated against the Grafton Group plc by a shareholder alleging infringement of his rights as a shareholder in relation to the holding of a closed AGM meaning that he was only being allowed to listen in. An interim injunction was refused in this case.

The Companies (Miscellaneous Provisions) (Covid-10) Act 2020 is complemented by a draft Statutory Instrument, the Companies Act 2014 (General Meetings) Regulations 2020 which upon its adoption will provide further clarification on the operation of virtual AGMs. In particular, this draft statutory instrument usefully indicates that notice of AGM provided to shareholders must provide advance details on procedures for questions and comments from attendees to be communicated as well as on voting mechanisms.

Greater clarity around what shareholders can expect has now been provided. The relevant new legislative provisions contained in the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 contemplate participation by audio and audio-visual means. On this front, it is interesting that these new legislative provisions indicate that AGMs may be held entirely by electronic means provided that shareholders are given “a reasonable opportunity to participate.” From a shareholder democracy point of view, much hinges on this. This would presumably mean a requirement for a two-way audio facility to be provided to shareholders, not merely a one way audio listening facility.

A particular issue with virtual AGMs arises around submission of questions by live chat (as well as prior submission in writing of questions by shareholders), and whether all such questions must be answered at the virtual AGM. The financial media has reported how during the Covid-19 crisis shareholders participating in some virtual AGMS have alleged that they could only listen to proceedings, were unable to ask questions of company management, or that their submitted questions were ignored during the AGM proceedings. It may certainly be the case that time precludes a board from answering all submitted questions at an AGM and that for questions posed in a live chat facility, boards may exercise some discretion in choosing which to answer.

Of interest to this vista is the potential for technology in the form of the chat function on the electronic platform for an AGM to fundamentally alter and transform the nature of the discourse between the shareholder organ and the board of directors. In place of orderly submission of prior written formal questions and observations on select matters, one can imagine that rapid fire background commentary among shareholder attendees could potentially punctuate AGMs where functionality is enabled that permits participants to send messages to all virtual attendees.

 

Conclusion

While many companies will already have wrestled with the challenges to holding their AGM presented by COVID-19, the clarity provided by the new legislation will be welcomed by companies planning their 2020 AGMS. Electronic AGMs give a more inclusive option than closed AGMs even if some retail shareholders may not feel comfortable using electronic platforms. The impact is of course likely to be more keenly felt on larger private companies and PLCs as private limited companies and single member companies already have an option to choose not to hold AGMS.

AGMs have been booted from the fustiness of the nineteenth century into the fourth industrial revolution. How shareholders will leverage available technology to attend AGMs and use their voice to ask questions and pass comment in new ways and how skilfully this potentiality will be managed by company boards remains to be seen in this new era of electronic shareholder accountability.

 

Deirdre Ahern is Director of Technologies, Law and Society Research Group, School of Law, Trinity College Dublin.

 

Suggested citation: Deirdre Ahern, ‘The Advent of a Covid-19 Legal Regime for Virtual AGMs: A New Vista of Technological Corporate Accountability to Shareholders’ COVID-19 Law and Human Rights Observatory Blog (13 August 2020) https://tcdlaw.blogspot.com/2020/08/the-advent-of-covid-19-legal-regime-for.html