In Three Tips for Running a Successful Virtual Shareholder Meeting we looked at some of the practical things you need to consider before running a shareholder meeting virtually. Today we want to take a deeper look at shareholder engagement in those meetings. Run well, a virtual meeting should enhance, not detract from shareholder engagement. Today we consider:
- Why is shareholder engagement important anyway?
- How does traditional shareholder engagement work?
- What are some of the obstacles to virtual shareholder engagement?
- How do you optimize the online format for shareholder engagement?
Why is shareholder engagement important anyway?
Relative to directors and officers/management, shareholders generally take a more passive role in the life of the company. The specific rights that they do have are strictly limited by law, exchange rules, company constitutions and by-laws. And their duties are few – for example, shareholders are generally not required to act in the interests of the company.
The decisions of shareholders matter, however, as:
- The rights they do have are extremely powerful (e.g., the right to dismiss directors, agree to executive remuneration or, in some jurisdictions, liquidate the company);
- Dissatisfied shareholders can bring legal action and/or significantly damage the reputation of the company;
- Dissatisfied shareholders may sell their equity to the company’s detriment.
So, from the perspective of the company, meaningful shareholder engagement is essential to avoid headaches further down the track.
From the perspective of the shareholders themselves, there is always some interest in the ongoing performance and position of the company, insofar as it impacts on share value and dividends. But at the same time, some shareholders may be more interested in engagement than others:
- those who intend to hold their shares only in the short-term might be less interested in engaging;
- smaller retail shareholders may feel intimidated and perceive their engagement as having little effect.
How does traditional shareholder engagement work?
Traditional shareholder engagement has focused on the annual report and other compulsory disclosure, as well as the Annual General Meeting (AGM) and any other compulsory meetings.
In theory, the expectation has been that the board takes the lead when it comes to shareholder engagement (see for, example, The Director-Shareholder Engagement Guidebook. In practice, this has depended on the interest of individual directors, with much engagement delegated to management and, often enough, designated investor relations teams.
Outside of compulsory meetings (such as the AGM), engagement has tended to focus on large ‘institutional’ investors (e.g., mutual funds, pension/superannuation funds and insurance companies). In many cases, these investors have had the ‘ear’ of management and/or the board, and have been able to influence company decisions outside the compulsory meeting framework.
The traditional engagement format, dominated by ‘in-person’ meetings and AGMs run the risk of:
- limiting participation of shareholders generally, as many are unable to attend in-person meetings. This is compounded by ‘peak AGM season’, where many AGMs are held at the same time, making it impossible for investors to attend them all;
- marginalising smaller retail investors who may lack the direct engagement channels of institutional investors.
What are some of the obstacles to virtual shareholder engagement?
In response to the deficiencies in traditional shareholder engagement, virtual meetings, including virtual AGMs, might seem an obvious solution. There is no need for shareholders, directors, and management to travel for meetings and there may be considerable cost savings.
However, there are also potential obstacles to taking the virtual approach:
- Perceived company control over meetings. Through the online format, there is the potential for the company directors or management to prevent awkward questions/discussions from the floor. Similarly, there is the potential for the chair to use their power to take polls or adjourn meetings, in a way that prevents company scrutiny;
- A potential reduction in informal engagement between company directors and management and shareholders. I.e. No curly questions during the morning tea break.
How do you optimise the virtual meeting for shareholder engagement?
The good news is that the potential downsides to virtual meetings can be mitigated through some simple actions. In addition to suggestions outlined in Three tips for running a successful virtual shareholder meeting, we suggest:
- Transparency of format for the AGM. Consider giving shareholders a say in how the meetings will proceed;
- Provide training/a trial run. Shareholders who are unfamiliar with the online meeting format should be able to get training to properly use the software;
- In many jurisdictions shareholders must be given a “reasonable opportunity” to ask questions (or some variation on those terms) at the AGM. As well as submitting questions before hand and during the meeting, companies could consider answering giving answers to any questions not answered, within a certain number of days of the meeting;
- Outside of the AGMs, regular virtual meetings might be set up between retail investors and the company to provide some form of ongoing input into company decisions. This provides further ownership of company decisions and reduces the risk of a ‘de-railing’ at the AGM.
Traditional approaches to shareholder engagement have tended to marginalise the interests of some shareholders. Virtual meetings can go some way to improving shareholder engagement. But in order to work well, companies need to consider how they can optimize the virtual meeting format. And this is not just about AGMs – virtual meetings could become an ongoing aspect of shareholder engagement.
AGM@Convene is a virtual AGM platform that enables companies to smoothly facilitate their virtual or hybrid annual general meetings, without compromising shareholder engagement. Simple and intuitive, AGM@Convene ensures that shareholders’ voices are heard even with the switch to the digital format. Read more about how you can use AGM@Convene to power your next virtual AGM or schedule a demo here.
For more on information on virtual AGMs, check out our other article, Your Guide to Virtual Annual General Meetings.