GC100 poll: the 2021 AGM season and beyond

Practical Law UK Articles w-032-4143 (Approx. 21 pages)

GC100 poll: the 2021 AGM season and beyond

by Practical Law Corporate

GC100 poll: the 2021 AGM season and beyond

The COVID-19 pandemic has highlighted the need for companies to be afforded some flexibility in the way that they conduct their general meetings, and the changing AGM landscape has been, and continues to be, a topic for discussion among various industry bodies.

In January 2021, GC100 published a discussion paper "Shareholder meetings – time for change?", which includes a code of best practice for conducting virtual and hybrid general meetings. Subsequently, GC100, in collaboration with Practical Law and Freshfields Bruckhaus Deringer LLP, published a guidance note on the practical considerations of running a virtual and hybrid meeting (which includes GC100's code of best practice). The guidance note will be updated from time to time to reflect emerging market practice.

This article summarises the results of a poll carried out among GC100 members to see how companies have conducted their AGMs so far this year. It also provides insights as to how companies perceive the purpose and future of the AGM and what approach, if any, companies are taking in relation to climate, sustainability and environmental, social and governance (ESG) issues. These findings will assist GC100 in updating its discussion paper and inform discussions with various stakeholder bodies on the purpose and future of the AGM in the coming months.

GC100 recognises that the insights and approaches taken by FTSE 250 companies may differ from FTSE 100 companies. To provide a more balanced overview of how FTSE 350 companies see market practice evolving over time, FTSE 250 companies were invited to participate in the poll, the results of which have been collated and included in the findings set out below.

GC100 polled its members during the 2020 AGM season to see how companies were addressing the potential disruption to their AGMs in the light of the outbreak and subsequent escalation of the pandemic (see Article, GC100 poll: The 2020 AGM season – the catalyst for change?).

GC100 is the association of general counsel and company secretaries working in FTSE 100 companies. For further information, see the GC100 website.

Background

59 FTSE 350 companies (35 FTSE 100 and 24 FTSE 250) responded to the poll, although not every question was answered by each company.

The poll comprised questions relating to:

The 2021 AGM season, including format of meeting, stakeholder engagement and use of technology.

Lessons learned from the 2021 AGM season and whether the pandemic has influenced a company's approach to holding general meetings, particularly the AGM.

The purpose and future of the AGM, including a company's approach to stakeholder engagement and the preferred format of meetings going forward.

Climate, sustainability and ESG issues at the AGM, including how companies are addressing investor concerns, governance structures and the appetite for seeking shareholder approvals on climate related matters.

The views expressed by respondents to this poll do not necessarily reflect the views of all FTSE 350 companies. Accordingly, the insights set out below should be read in this context. Not all respondents answered every question, so the findings are based on the number of respondents answering each specific question.

The poll closed on 20 August 2021.

Key findings

Trends from the 2021 AGM season

Nearly 30% of respondents categorised their 2021 AGM as a hybrid meeting. Three FTSE 250 respondents have conducted fully virtual AGMs.
90% of respondents provided a facility for questions to be submitted in advance of the meeting and 73% of respondents will offer this next year. Just over half of the respondents indicated that there had been no material change in the number of questions asked and 42% saw a decrease compared to previous years.
31 respondents noted a decrease in the number of shareholders participating in the meeting as compared to physical attendance in previous years, with some respondents noting a considerable fall in attendance numbers.
Only six respondents disclosed that institutional investors attended their respective AGMs.

Format of future meetings

88% of respondents have authority to conduct hybrid and, in some cases, virtual general meetings. 48% of respondents sought authority to conduct hybrid meetings at their 2021 AGM.
47% of respondents indicated hybrid meetings are the preferred format for future meetings and 19% have a preference for virtual meetings. However, no respondents are currently intending to hold virtual meetings next year.
61% of respondents do not consider the lack of legal clarity to be a determining factor in their choice of AGM format.
Barriers to holding hybrid meetings include costs, risk of technology failure and invalidity of meeting, resourcing and shareholder resistance.

Purpose of AGMs

There are a range of differing opinions among respondents on the purpose and future of the AGM.
The responses indicate that the purpose of the AGM is to provide an opportunity for shareholders to engage with the company and hold the board to account. However, some companies see the AGM as an opportunity for wider stakeholder engagement while others perceive the AGM to have little purpose other than to obtain relevant shareholder authorities, especially in view of relatively low attendance by institutional investors.
Notably, retail shareholder bodies consider the AGM to have important value.

Stakeholder engagement and the AGM

63% of respondents indicated a view that the pandemic has led to a different approach to stakeholder engagement. Reasons given for the change in approach generally related to the switch to virtual interaction prompted by new technology, although companies also cited an increase in the number of one-to-one virtual meetings with stakeholders, including investor bodies and proxy agencies.
59% of respondents indicated that the quality of stakeholder engagement has not increased.
Nearly three quarters of respondents indicated their preference to hold separate stakeholder events during the year rather than encouraging wider stakeholder engagement at the AGM.

Climate/ESG issues

57% of responding companies reported pressure from investors on climate change and 77% reported pressure on ESG issues in general. Few companies reported pressure on other specific ESG issues.
16% of respondents have designated a specific director with responsibility for sustainability issues, and 88% provide regular briefings to the board on climate, ESG and sustainability issues.
Five FTSE 100 responding companies (and no FTSE 250 companies) are planning to offer shareholders a vote on a climate transition action plan for their company at the next AGM.
87% of respondents do not think the government should introduce a requirement for a mandatory AGM resolution on climate issues.
Respondents suggested that government guidance on dealing with climate, ESG and sustainability issues at AGMs should be high level and flexible to reflect that ESG issues depend on the nature of the business.
Respondents called for clarity, consistency and alignment of reporting standards to enable shareholders to make informed decisions.

Section 1: the 2021 AGM season

For many companies, the uncertainties faced during the 2020 AGM season continued in 2021 when the temporary relaxation of certain requirements of the Companies Act 2006 relating to company meetings, introduced by the Corporate Insolvency and Governance Act 2020, expired on 30 March 2021. From April until the easing of lockdown restrictions in July this year, companies without express provisions in their articles to permit the holding of virtual or hybrid general meetings were required to hold a physical meeting, even though physical gatherings were not permitted during this period.

This section of the article reflects on how companies have conducted or propose to conduct their AGMs during the 2021 AGM season.

Format of meetings

Of the 59 respondents to the poll, 71% have a 31 December year end and were required to hold their AGM before the end of June. The majority of 2021 AGMs held so far this year were held between 30 March and 16 May.

Image 1 within GC100 poll: the 2021 AGM season and beyond

Respondents have conducted their meetings using a variety of formats as shown in the following graph:

Image 2 within GC100 poll: the 2021 AGM season and beyond

Nearly half of FTSE 100 respondents categorised their AGM as a hybrid meeting with restrictions on attendance. Of the 32 companies that held closed meetings:

22 offered some form of audio broadcast/video conferencing facility.
20 offered a facility for shareholders to ask questions during the AGM.

The majority of companies offered the facility to ask questions in advance (see Questions).

Virtual and hybrid meetings: authority in articles

88% of respondents have authority to conduct hybrid and, in some cases, virtual general meetings:

36 companies (19 FTSE 100 and 17 FTSE 250) have authority in their articles to conduct hybrid general meetings.
16 companies (eleven FTSE 100 and five FTSE 250) are authorised to hold both virtual and hybrid meetings.

26 respondents sought authority at their 2021 AGM (48%). Six noted that they intend to seek authority to conduct hybrid (and, in some cases, virtual general meetings) at their 2022 AGM.

Questions

90% of respondents provided a facility whereby shareholders were able to submit questions in advance of the meeting (in most cases a designated email address for the attention of the company secretary). Some questions were submitted through the company's website, with a small number of companies requesting that questions be submitted by post. Two respondents noted that questions could be submitted in advance via the respective company's AGM online provider.

80% of respondents permitted shareholders to ask questions live during the AGM, although proportionately more FTSE 100 companies facilitated this than FTSE 250 companies. Of the 47 respondents that did so, 40 facilitated this using the Lumi app or similar.

One FTSE 100 respondent noted that they offered shareholders four ways to ask questions:

Pre-registration in advance via the company's website.
Via the electronic platform before the AGM on the day and during the AGM.
In person during the AGM (also pre-registered at the Q&A points at the venue).
Via audio line at the AGM.

Interestingly, 53% of respondents indicated that there had been no material change in the number of questions asked and 42% saw a decrease compared to previous years. Only three respondents (two FTSE 100 and one FTSE 250) noted an increase in the number of questions asked at their 2021 AGMs.

Of the questions asked at the AGM, 29 respondents indicated that one or more of the questions had been pre-submitted.

Stakeholder engagement

When asked if the pandemic has led to a different approach to stakeholder engagement, 63% of companies that answered this question noted that it had. Reasons given for the change in approach generally related to the switch to virtual interaction prompted by new technology such as Zoom, Microsoft Teams and other online platforms, but respondents also cited an increase in the number of one-to-one meetings with stakeholders (including investor bodies and proxy agencies), albeit held virtually using webcasts and online/video conferencing facilities.

One FTSE 100 respondent suggested that the pandemic has encouraged engagement ahead of the AGM, especially with those who would not normally attend on the day. Another FTSE 100 respondent noted an increase in engagement with its global investor base and a higher uptake of governance meetings with the chair. It also noted that attendance at the company's virtual investor day was excellent.

Interestingly, one FTSE 250 respondent noted that the pandemic has accelerated the trend for stakeholder engagement away from the AGM towards one-to-one meetings, while others noted that the only material change has been centred around the AGM and the facility for shareholders to submit questions in advance or for those attending virtually to ask live questions.

However, there is still an appetite to meet in person as noted by one respondent that is offering a "get together" informal chat with shareholders and the board as they have not met in person for some time.

One FTSE 100 respondent commented that from a stakeholder engagement perspective, it sees the COVID-19 pandemic as a turning point, heightening the link between society and the corporate world. The company’s approach to stakeholder engagement has been informed by the philosophy of behaving responsibly. Examples of this across the company’s key stakeholder groups include:

Supporting employees and customers.
Supporting broader society. The board took temporary, voluntary reductions in pay and fees. This was then donated to charities engaged in COVID-19-related activities.
Supporting shareholders. The board, having performed financial stress testing and scenario planning, decided that the right decision was to proceed with a recommendation to pay the dividend.

Stakeholder engagement challenges

Despite the increase in engagement by some companies, some of which are using online technology to enhance engagement opportunities (see Technology), 38% of respondents noted that there had been challenges in achieving engagement with investor bodies this year and 59% of respondents indicated that the quality of engagement has not increased. Challenges cited include limited capacity for engagement due to insufficient resourcing, poorer proxy voting results based on incorrect data and investors taking a tick-box based approach, sometimes due to limited resourcing.

Some of the explanations as to why engagement has been challenging are noted below:

FTSE 100

"ISS will not engage meaningfully and takes a tick-box approach to its positions."

FTSE 250

“As a small FTSE 250 company, we are quite low down on the investor bodies’ list which leads them to a formulaic approach.”

One FTSE 100 respondent noted that most investor votes are not available until two days before the proxy deadline leaving little time to check whether the company's largest shareholders have voted and whether this is in line with expectations, and if not, to engage with them again. While investors will engage on important issues, they are less likely to engage on routine matters. If they then decide to vote against or to abstain from voting, there is little opportunity to engage so close to the proxy deadline.

Interestingly, another FTSE 100 respondent suggested that Glass Lewis engages well and takes a tailored approach to its positions based on the individual companies. Another suggested that Glass Lewis is more open to engaging in dialogue than other bodies.

Of those respondents that have seen an increase in the quality of engagement, reasons noted include more one-to-one meetings, greater accessibility due to remote working and better ways of communicating virtually. It was also noted that there is a growing trend in the level of engagement from ESG representatives of the various investors.

Separate stakeholder events

Seven respondents (six FTSE 100 and one FTSE 250) disclosed that they held a separate stakeholder event to the AGM, each being held prior to the proxy deadline for the meeting. One event specifically focused on helping stakeholders to better understand the company’s new energy transition strategy which was to be put to shareholders for approval at the AGM. Three FTSE 100 respondents stated that the event was extended to wider stakeholders.

Shareholder attendance

Companies were asked how the number of shareholders joining the AGM virtually this year compared with physical and remote attendance in previous years. Of the 39 companies responding:

31 indicated that there had been a decrease in the number of shareholders participating in the meeting virtually as compared to physical attendance in previous years, with some respondents noting a considerable fall in attendance numbers.
Five noted an increase in shareholder attendance and participation.
Three noted no change.

One FTSE 250 respondent noted that, despite making both online and phone two-way interactive facilities available at considerable cost, fewer than 1% of shareholders attended the meeting. They further noted:

"Regulators should not push requirements for hybrid meetings on companies when shareholders clearly don't want to participate that way."

Only six respondents disclosed that institutional investors attended their respective AGMs, with one FTSE 250 company quoting:

"One attended which is absurdly low – but the reality is that they have all voted by proxy in advance, so they consider their job done."

Requisitioned resolutions

Companies were asked if they had seen an increase in the number of requisitioned resolutions at their 2021 AGMs. Of the 59 companies responding to this question, only one FTSE 100 respondent noted that it had.

Technology

When asked if the technology currently available is sufficiently advanced to facilitate the conduct of virtual or hybrid meetings effectively, 81% of companies that responded to this question agreed that it is. Nearly two thirds of respondents had no technological challenges when conducting hybrid meetings, with one FTSE 100 respondent noting that the collaboration between the company, the registrars and the online provider worked very well.

"I think that the pandemic has shown that for events like AGMs, technology provides a better way to engage with shareholders rather than everybody having to turn up to a particular place at the same time." (FTSE 250)

However, many responses suggested that a greater choice of suppliers, lower costs and additional functionality would be welcomed, for example:

In addition to online voting facilities, providers should offer interactive speaking and audio facilities (not just a chat function) to avoid the additional complexities and costs of using separate providers for different functions.
Enhancements to the Q&A facilities, including introducing a two-way chat function so that a company can respond to shareholders directly in real time.
The ability to chat to individual attendees.
Functionality to allow employee shareholders, whose shares are held in a vested account, to vote and ask questions.

Technology methods

Three quarters of respondents confirmed that they had adopted new technology in their engagement mechanisms. The methods used are illustrated in the graph below:

Image 3 within GC100 poll: the 2021 AGM season and beyond

Concerns surrounding use of technology

One FTSE 100 respondent noted their concern that the introduction of an audio line at a hybrid meeting increases the risk of technological issues and is potentially more difficult for shareholders to use. Physical attendance or attendance electronically through an online platform should be sufficient. However, another FTSE 100 respondent suggests that many companies are ignoring the need for a phone line to allow a shareholder to be heard (see Byng v London Life Association Ltd [1990] Ch 170 [183A], [188F] and Re Castle Trust Direct plc [2020] EWHC 969 (Ch) [41] – [42]).

Commentary also suggests that clarity is needed in relation to the validity of the AGM if there is a technology failure during a hybrid or virtual meeting and whether the meeting needs to be adjourned.

Three FTSE 250 respondents noted that, despite the additional resources and costs incurred in offering remote participation to shareholders, attendance was considerably lower than for meetings in person. It was also noted that in general the demographics of those attending physical AGMs may lead to lower attendance levels for meetings conducted virtually.

Section 2: lessons learned from the 2021 AGM season

This section of the article provides insights from the 2021 AGM season, including proposed meeting formats for 2022 and the potential barriers to holding virtual or hybrid general meetings.

AGM format

While many respondents noted that they have not yet decided on the format of the 2022 AGM, 43% indicated that they will hold hybrid meetings next year (20 FTSE 100 and five FTSE 250 companies). No companies are intending to hold virtual only meetings.

Image 4 within GC100 poll: the 2021 AGM season and beyond

Some respondents noted that they will wait to see how market practice develops before making a definitive decision, with others noting costs and low online attendance to be a determining factor:

"I query whether using an online platform is worth it on top of the expense of a physical meeting with only 25 shareholders joining online in 2021." (FTSE 100)

Over 80% of respondents indicated that the company's choice of proposed meeting format had not been influenced by shareholder feedback. Interestingly, just over 60% of respondents said that clarity on the legalities of virtual meetings would not affect their choice of meeting.

Companies were asked which aspects (if any) of the company's 2020 and 2021 AGM they will adopt going forward. The responses are illustrated in the graph below:

Image 5 within GC100 poll: the 2021 AGM season and beyond

Notably, 73% of respondents will offer shareholders the facility to submit questions in advance.

Barriers to holding hybrid meetings

Companies were asked if they foresee any barriers to holding a hybrid AGM. Just under 40% of respondents to this question indicated that they do. A summary of the reasons given are set out below:

Cost	The cost of the online facilities outweighs the small number of shareholders attending. (FTSE 100) Hybrid meetings double the cost unless a company can use its offices for the physical meeting. (FTSE 100) Costs can be significant for holding a hybrid AGM, particularly where the physical meeting is held at a conference centre. (FTSE 100) For a small company, the cost of virtual meetings looks prohibitive given the small number of shareholders who attend. (FTSE 250) The company usually has a very low turnout and the current hybrid providers can be expensive. (FTSE 250) Costs which are high compared to holding a physical meeting at legal advisors' offices (free of charge) or at our registered office. (FTSE 250)
Legalities and risks	Risk that the meeting would be invalid if the online part of the meeting failed. This created a huge piece of additional work on the contingency arrangements and the testing of the online facilities so that we could be comfortable that the risks were mitigated. (FTSE 100) Cyber risks and ensuring proper development of the event from a legal perspective. (FTSE 250) Internet failure implications need to be considered. (FTSE 100)
Resourcing	Shareholders don't appreciate the additional effort and cost. (FTSE 250) Support needed to run a fully hybrid meeting in a large location. (FTSE 100)
Technology	A company and its shareholders need the confidence that the technology will support a hybrid meeting with no compromise to shareholder rights. (FTSE 250)
Resistance from shareholders	Retail shareholders don't want hybrid meetings. (FTSE 250)

Other observations

One FTSE 100 respondent suggested it would welcome best practice guidance on how companies can structure their meetings to reduce or remove the risk that the meeting is invalidated due to technological failure. It also advocates a change in legislation to split the voting requirements for the AGM from the shareholder engagement; that is, retain the requirement to hold a meeting where shareholders can engage with directors but have the voting requirements met both electronically and separately.

A FTSE 250 respondent commented that if the legality of virtual meetings were to be clarified by statute, it might suit some companies to abandon in-person meetings altogether. It was further noted that, although some commentators might decry the absence of an opportunity to speak to directors face-to-face, companies whose AGMs tend to be poorly attended would be likely to welcome the option of choosing either virtual or in-person arrangements, without having to incur the increased cost of a hybrid meeting.

Interestingly, one FTSE 100 respondent noted its concern that non-governmental organisations (NGOs) have a tendency to use the AGM platform to gain publicity for their causes and that their dominating presence is potentially deterring retail shareholders from attending. As such, a balance needs to be reached between providing shareholders with the right to ask questions of the board and managing NGOs' dominance at AGMs.

Feedback on AGM formats

11 respondents noted that they had received feedback on their AGM format this year, most of which was positive. One respondent noted that, having not offered live voting, a shareholder had raised the issue of not being able to amend their vote after listening to the presentations and Q&A session. Another respondent noted that, although no direct feedback was received, the attendance figures indicated that the online format had not been embraced by shareholders.

However, one FTSE 250 respondent believes that a hybrid meeting is a "total waste of time", and another commented that having arranged a gold standard AGM, which may keep the Financial Reporting Council (FRC) happy, it was of no interest to its shareholders.

Section 3: purpose and future of the AGM

In its report Corporate Governance, AGMs: An opportunity for change published in October 2020, the FRC stated that as a result of the substantial obstacles companies faced in organising their AGMs during the COVID-19 pandemic:

"We now have a unique opportunity to consider the purpose of the AGM, what it offers a company, its shareholders, and other stakeholders."

With this in mind, companies were asked what, in their view, is the purpose of the AGM given the demographic of the audience and changing ESG landscape.

Purpose of the AGM

Overall, the responses indicated that the purpose of the AGM is to provide an opportunity for shareholders to engage with the company and hold the board to account. However, some companies see the AGM as an opportunity for wider stakeholder engagement, while others perceive the AGM to have little purpose other than to obtain relevant shareholder authorities.

Notably, two FTSE 250 respondents commented:

"The AGM has lost its purpose. Institutional investors clearly do not value the format preferring private meetings."

Another FTSE 250 respondent suggested that, although the AGM remains a useful focal point, the convening of a conventional physical meeting no longer meets the company’s needs:

"AGMs have not been well attended for a while and much shareholder engagement takes place outside of it. Whilst they remain a useful focal point and provide a pressure point for the company, it has not been economical for us to hold physical AGMs for a while and so wherever possible we would like to continue with virtual/ hybrid AGMs and do not hear significant clamour from institutional investors or proxy agencies for otherwise.”

However, conversely one FTSE 250 respondent noted:

“I don't think that we necessarily have to change the purpose of the AGM or who can attend. If a company has something to say it should be communicating on an ongoing basis with investors and potential investors. If there is inside information, it should be disclosed as soon as possible, and we got rid of quarterly reporting a few years ago.”

Other responses varied but commentary on the purpose of the AGM, together with some general observations, may be summarised as follows:

Holding board to account/direct engagement	The AGM provides an opportunity for shareholders to ask questions and engage with the board on issues that are important to them, hear from management and, where possible, meet directors in person. The AGM remains the main, and sometimes the only, opportunity for shareholders to directly ask questions to the directors during the year. One of the purposes of the AGM is to provide a foundation for stakeholder engagement. The purpose is really to give non-institutional investors an opportunity to put their views, as institutional investors have their own channels. The AGM remains a good opportunity for shareholders to hold the board to account for the stewardship of the business, challenge transparency and ask questions in real time. The AGM enables fulsome engagement with stakeholders and enables stakeholders to hold the directors to account. It is an opportunity for shareholders, including small retail shareholders, to hold the board to account in person and for activists to make their points in a live meeting. To update shareholders, investors and employees on events during the year and provide an overall summary of how the company has performed.
Legal purpose	The purpose of the AGM is to obtain shareholder feedback, for example, an advisory vote on climate related financial reporting. The purpose of the AGM is not to focus more on the ESG landscape (that is more in the annual report). The AGM is purely there to approve the resolutions and there is very little interest in it from the shareholders other than in relation to those issues. The legal purpose is the only purpose, but this may be particular to our company given lack of shareholder attendance at previous AGMs. Given the low turn-out, the AGM really is now just a legal process. Given the changing ESG landscape, perhaps better to hold separate stakeholder events rather than detract from the statutory AGM purpose.
Stakeholder engagement	The AGM could be an opportunity to engage with all stakeholders not just shareholders. The AGM provides stakeholder engagement opportunities. Before COVID-19, the AGM was a genuine opportunity for mostly small retail shareholders to hear and speak to their directors in person. In theory it should also be an opportunity for engagement with institutional shareholders, but they do not attend, physically or online. It is difficult to manage the event for wider stakeholders as the principal purpose is to pass shareholder resolutions.
Governance purpose	The AGM is simply an avenue for institutional investors (often led by advice from ISS and IVIS) to apply governance and provide messaging on topics such as remuneration.
Demographics/retail shareholders	Retail shareholder bodies are clear that they still see important value in the AGM – for large, highly complex organisations, extending the purpose of the AGM beyond this would be impractical. The AGM has always been a key event to communicate with retail shareholders and allow them the opportunity to ask the board questions and hold them to account. Any developments in technologies or in the format of AGMs should ensure that this principle is upheld. With many AGMs going online in 2021, it was hoped that it would attract younger shareholders as physical AGMs have traditionally been attended by shareholders at retirement age. The attendance figures for online AGMs have been disappointing. However, further work should continue in trying to connect with all parts of our shareholder base and ensure the AGM is still used as an opportunity for shareholders to communicate directly with the board. Our AGM attendees are largely elderly retail shareholders who like a day out to meet the board in person. It is possible that demand for online access to meetings will grow as younger shareholders join the register over time.

Value and future of the AGM

Respondents also gave their views on the value and future of the AGM. A summary of the responses is set out below:

Little purpose or value	The AGM seems to have little purpose now. Lack of clarity on the actual value of the AGM, whether it's a FTSE 100, 250, small cap or AIM company. The AGM seems to have little purpose now and with low attendance over the last few years we would suggest a different method of engaging with shareholders that would be more useful. Proxy votes received from institutional investors prior to the AGM have already decided the voting outcome. Different stakeholders view the company through different lenses. A “one size fits all” AGM is unlikely to create meaningful engagement with each stakeholder group.
Diminished attendance	Very few shareholders participate in our AGM unless it is a physical meeting and involves refreshments.
NGOs/activists' dominance	The AGM is primarily used as an opportunity by NGOs and campaigners to raise ESG issues. We would be happy to address such issues during the year if raised with the company through other means. Virtual meetings would at least make the event accessible to more people and save expense for the company. The company's physical AGM has been heavily dominated by NGOs and other lobbyist groups for many years. The formal resolutions and the performance of the company receive very little comment. The physical meeting also generates notable protest, which heightens security risk.
Value for retail shareholders	For retail shareholders, there are other routes to shareholder engagement than calling them to a formal meeting over which they have no influence. Based on shareholder take up of the 2021 event (0.12% of issued share capital), we see limited value in the AGM other than giving a tiny proportion of our retail shareholder base a feeling of engagement with access to the group leadership.
Costs	The costs of holding the AGM are quite considerable. Moving to a separate retail shareholder event may be a solution, but again the costs would have to be weighed up and whether the event would have a meaningful impact on business decisions.
Questions	The questions asked do not necessarily relate to the resolutions being proposed for approval and are not material in terms of ESG.
Dated format	The AGM is archaic and stuck in the past. Given the significant size of the shareholder base in most listed companies and the decreasing trend in the level of attendance at the AGM event itself, the AGM product has become increasingly antiquated and could be redefined to add more value by providing a better opportunity for more engagement with investors and other stakeholders. The opportunity for retail shareholders to engage with management and the board is welcome but could be better handled with a shareholder engagement event that is slightly divorced from the AGM itself. Institutions rarely attend the AGM. The AGM is an outdated format based on 19th century joint stock company law and technologies available at the time.

Separate stakeholder events or wider stakeholder engagement at the AGM?

Just over 70% of respondents indicated that their preference would be to hold separate stakeholder events during the year as opposed to encouraging wider stakeholder engagement at the AGM itself.

Respondents' reasons for doing so include:

Specific stakeholder events during the year would be more useful and encourage a more wide-ranging debate. The AGM could then just be a functional event to vote on the resolutions having already engaged with all relevant parties.
While one meeting would be more cost effective, it may lead to greater disruption for the legal meeting.
Ideally an event should be held before the AGM but after the results are announced so shareholders can use the event to: (a) decide how to vote; and (b) determine if they wish to requisition further/different resolutions at the AGM.
Routine AGM business can be quite tedious for the smaller investor, so a more engaging event during the year would also be beneficial for shareholders.
Capital markets days and governance/ESG events are a good idea.
Some of the AGM matters are reasonably technical. To open the event to non-shareholders would potentially lead to confusion and distract from the technical points required to be addressed.
Companies should be holding events outside of the AGM which are more discursive for wider stakeholders.
There is a risk in trying to combine the legal purpose of the AGM and the engagement event.
Separate stakeholder events specifically tailored to the audience will provide far more meaningful engagement.
While it is good to provide other stakeholders with the opportunity to attend an AGM, there should be a differentiation between shareholders and other stakeholders. Perhaps prioritising shareholder questions, limiting the questions asked by other stakeholders, or having a two-part meeting so that the legal business of the meeting is not disrupted by broader stakeholder engagement.

Conversely, 15 respondents are of the opinion that companies should encourage wider stakeholder engagement at the AGM as opposed to holding separate events. Reasons given include:

The AGM could become an opportunity for wider engagement and dialogue with shareholders and other stakeholders.
If the current format of AGM is here to stay, companies should encourage wider engagement rather than having to hold two separate events.
For companies with low attendance at their AGMs and no questions pre-submitted, there is little incentive to do more.
Many companies do not have the budget or resource to conduct separate stakeholder events.

Other observations

It was noted that companies should assess their own shareholder base and decide if additional events outside the AGM would be beneficial to shareholders. This may include holding events online or in different jurisdictions to ensure engagement with all those on the register.

Nearly three quarters of respondents noted that the AGM should not be open to non-shareholders, with one respondent suggesting that as non-shareholders do not have a vote, their attendance may conflict with the purpose of the AGM. It was also noted that the purpose of the AGM is for formal business and passing resolutions. Further, as employees, suppliers and customers have their own communication channels with companies, the AGM should remain a shareholder event.

Format of future AGMs

47% of respondents indicated that a hybrid meeting is the preferred format for the future. 11 respondents (five FTSE 100 and six FTSE 250) noted a preference for a virtual meeting.

Image 6 within GC100 poll: the 2021 AGM season and beyond

Commentary surrounding preferred formats of meeting includes:

Hybrid is probably emerging as the strongest format from a governance perspective, enabling truly global participation. The technology is generally tried and trusted.
Given the current demographic of our retail shareholders, it seems unlikely that we would move to a virtual only event, but it seems that would help to save cost.
Hybrid is the preference if this enables an increase in the level of participation.
The hybrid format is the preferred approach as it allows all shareholders the opportunity to attend and participate at the AGM. However, companies are likely to assess the online attendance levels of shareholders and balance this against the costs and risks of holding a hybrid meeting. Legislative change is welcomed to reduce the risk of invalidating the meeting if the technology fails.
We would want to assess how many people attend future hybrid meetings and whether the balance of effort and cost is better served by a fully virtual meeting (if acceptable in the future).

Section 4: AGMs: climate, sustainability and ESG issues

In recent years, ESG and sustainability issues have become increasingly embedded in the activities and decision-making processes of many businesses and institutional investors. Climate change is the most urgent issue on this agenda and recognition of the severity of the risks from climate change has grown exponentially over recent years. Companies are under pressure from investors, activists, consumers, and other stakeholders to manage, reduce and report on their climate-related risks and impacts.

During the 2021 AGM season, there has been a significant increase in climate change issues being brought to the AGM, both through resolutions proposed by the board, and resolutions requisitioned by shareholders. In the first half of 2021, 12 FTSE 350 companies (ten FTSE 100 and two FTSE 250) had resolutions on climate change at their AGMs, as compared to four during the whole of 2020 (see Practice note, Resolutions on climate change at annual general meetings of FTSE 350 companies).

This section of the poll asked companies about how they are addressing pressures from investors and other stakeholders on climate, sustainability and ESG issues, including through the AGM.

Pressure points

Companies were asked to identify the main pressure points applied by investors, NGOs, shareholders, and other stakeholders in relation to climate, sustainability and ESG issues. Respondents reported significantly greater pressure in relation to general ESG issues and climate change than on other specific ESG or sustainability issues, as illustrated by the graph below.

Image 7 within GC100 poll: the 2021 AGM season and beyond

Future developments

As for how these issues might develop in 2022, there is a consensus that they will continue to gain traction, with an increased focus on climate change, biodiversity and other ESG matters, especially for companies in certain sectors.

Commentary from respondents includes:

Engagement with stakeholders	Engagement on ESG issues with shareholders will increase (such as ESG roadshows). Companies will see active voting against the adoption of the annual report and re-election of the board and committee chairs if ESG and Task Force on Climate-Related Financial Disclosures (TCFD) reporting is inadequate.
Disclosure and reporting	Disclosures will need to increase in specificity on how ambitions and targets are being delivered, and in breadth to include adjacent issues, such as biodiversity. Investors will expect more climate disclosure, with alignment to TCFD and Sustainability Accounting Standards Board (SASB) reporting, including more pressure to report on scope 3 emissions (i.e. other indirect greenhouse gas emissions such as from the supply chain). One company commented that it is considering introducing voluntary reporting, and how else it could show its commitment to ESG matters (for example, social bonds). There will be a greater emphasis and pressure to report on the SASB framework from the US.
Remuneration	Sustainability metrics will form part of the criteria to be met for director and employee bonuses. Sustainability metrics will be embedded in remuneration structures.
Strategy	The focus on the risks and opportunities relating to sustainability will increase. Societal pressures will continue to increase and evolve in relation to ESG matters. There will be a higher focus with higher expectations.
AGM focus	There is potential to see shareholder votes on ESG/climate change at larger FTSE 100 companies (especially in natural resources), which will slowly percolate into the rest of the FTSE 100 and then down into smaller companies. There will be an increase in ESG questions at AGMs as shareholders will want to understand how companies are addressing ESG concerns. However, some respondents noted that this is not necessarily an issue for the AGM but relevant in terms of what a company publishes and how it engages in advance of the AGM. There will be an increase in focus on Say on Climate resolutions. Some investors will abstain or vote against advisory resolutions if disclosure against the SASB and TCFD frameworks is deemed insufficient.
Key sustainability topics	The focus on ESG issues will increase, specifically around climate change. Carbon emissions and D&I (diversity and inclusion) will dominate the next few years. There will be pressure regarding diversity, increasingly below the board. The emphasis on all aspects of ESG will increase, probably with a strong emphasis on climate change in the short term. The next stage will be to develop a hierarchy of ESG matters.

How are companies addressing pressure on climate, ESG and sustainability issues?

For one FTSE 250 company, climate, sustainability and ESG issues go to the very heart of their business. They said:

"Like all companies, we are thinking about our purpose and what we do and how we can change for the benefit of all stakeholders."

In general, companies' answers to this question provided more detail on some of the themes addressed in the previous question on future developments.

23 out of 41 companies that responded to this question commented that they are enhancing their engagement and consultation with stakeholders on these issues. Key points include:

Early engagement and staying ahead of the curve.
Specific events and meetings for investors on ESG and sustainability.
Engagement with shareholders and other stakeholders across society as part of setting the company's climate strategy and ambitions.
Engagement with ESG agencies, analysts, ESG rating agencies and ESG indices.

Some companies talked about their strategies for addressing climate, ESG and sustainability issues, including:

Producing a climate transition plan or sustainability action plan.
Setting medium and long-term commitments and metrics.
Establishing a corporate responsibility committee to review the ESG strategy and targets biannually.
Making commitments under external frameworks, such as the Net Zero Asset Owner Alliance.
Embedding ESG into all business areas.

Reporting and communication are another key part of the response. Many companies said they were enhancing their ESG reporting as part of their response to pressure on ESG issues. Some companies are publishing a separate sustainability report.

Several respondents indicated they were keen to be pro-active in this area. One FTSE 250 said that it was "acting pre-emptively", another FTSE 100 said it was "demonstrating leadership in this area and pushing boundaries".

One FTSE 100 respondent mentioned that they are looking beyond current and emerging legislation in this area and is being "guided not just by regulation, but also "soft" regulation from various indices (for example, FTSE4Good, Dow Jones Sustainability Index) where inclusion impacts the investability of [their] shares".

Other steps reported include:

Establishing ESG, CSR and ethics committees.
Linking environmental ambitions and KPIs to executive remuneration but keeping KPIs and links to remuneration for social issues under review.
Including a carbon emissions target in the annual bonus scorecard for all managers.
Dedicated resourcing for ESG.
The board proposing a resolution at the AGM, for example on climate-related financial reporting, a climate plan or on the company's energy transition progress.

Governance structures

Companies disclosed the following governance structures to deal with climate, sustainability and ESG issues:

Image 8 within GC100 poll: the 2021 AGM season and beyond

It is worth noting that only nine out of the 57 companies that responded to this question indicated that a specific director was designated with responsibility for sustainability issues, and 28 have designated board committees. Nearly all companies who responded provide regular briefings on these issues to the board, and 14 reported offering other internal training.

Shareholder votes on climate at AGMs

Since 2020, the Say on Climate initiative, supported by the Children’s Investment Fund Foundation, has encouraged listed companies to submit a climate transition action plan (CTAP) at their AGM for an advisory vote by shareholders. In the 2021 AGM season, four FTSE 100 respondents proposed a resolution to approve the company's CTAP or energy transition plan (see Practice note, Resolutions on climate change at annual general meetings of FTSE 350 companies). When asked if companies were planning to offer shareholders a vote on their CTAPs at their next AGM, five FTSE 100 respondents (and no FTSE 250 respondents) stated that this was their intention. Another company indicated that it expected a vote on a CTAP to be inevitable, possibly by 2023. Most companies who will offer shareholders a vote on their CTAP said that their decision to do so was in anticipation of future pressure rather than in response to direct pressure from the Say on Climate initiative.

Four FTSE 100 respondents (and no FTSE 250 respondents) said they were planning to offer shareholders a vote on their company's climate-related disclosures at the next AGM.

Two respondents commented that they had not yet decided whether to offer shareholders a vote on climate issues.

Mandatory AGM vote on climate issues

The majority of responding companies (87%) do not think the government should introduce a requirement for a mandatory AGM resolution on climate issues.

Of the seven respondents (three FTSE 100 and four FTSE 250) that advocated a mandatory resolution, three companies suggested that such a mandatory resolution should cover approval of a company's targets and progress to net zero (for example, approval of a roadmap to net zero by 2050 or 2030). Other suggestions were for a mandatory resolution to cover carbon emissions compared to national emission reductions, or whether the company's policies and actions are consistent with the Paris Agreement. One respondent suggested that, in time, a mandatory climate resolution may receive the same focus as remuneration reporting.

Best practice guidance?

Companies were asked what, if any, best practice guidance is needed from the government and regulators to assist companies in relation to climate, sustainability and ESG issues at their AGMs.

Notably, one FTSE 100 respondent suggests that:

"Companies are moving faster on this topic than government, so some fundamental work needs to be done by government(s) to set out how they intend to (and therefore the expectation on companies to) meet targets - too many people are relying on a silver bullet solution from renewable energy, electric cars etc. with no viable plan as to how the infrastructure or solution will be delivered and when."

A key theme of responses from companies was that ESG issues relevant to particular companies depend on the nature of the business, so any guidance would need to be very high level and flexible. One respondent noted that it was important for the government to recognise that "a one size fits all approach is inappropriate and wasteful, producing meaningless data/trends".

A contrasting set of responses called for consistency and standardisation in reporting requirements, for example with proposed templates for reporting and KPIs. One company commented that the sheer volume of issues, standards, codes and indexes is confusing, and that more clarity is needed before the government requires a mandatory resolution. Another added that reported information needs to be compatible for a vote on climate to be meaningful. One respondent asked for more free seminars to provide guidance on reporting.

Respondents also called for:

Better information to the wider community, better transparency on how carbon taxes (such as the UK Emissions Trading Scheme) fund sustainability initiatives, and more focus on carbon emissions from end-to-end supply chains (scope 3 emissions).
Consideration of how to ensure that responsibility for decisions taken and the right governance structures to hold executives and directors to account remain in place. Poorly thought through mandating of votes or other forms of disclosure could result in cursory levels of detail and muddled accountability.
Ensuring investors and external rating agencies are aligned (for example, to the Paris Agreement goals).

Conclusion

It is clear from the insights provided by respondents that there is a range of views among companies as to the benefits of conducting meetings which allow some form of virtual participation, with many citing low attendances, cost, and the risk of technology failure as potential barriers to holding hybrid meetings. However, with nearly half of respondents advocating that hybrid meetings are the preferred format for future meetings, there is clearly an appetite among FTSE 350 companies to encourage greater stakeholder participation by embracing new technologies that the virtual platforms provide.

Findings from the poll also indicate a range of differing opinions as to the purpose and future of the AGM, with some respondents seeing opportunities to use the forum to engage with wider stakeholders and others suggesting that the AGM has very little purpose other than to obtain relevant shareholder authorities.

Further, there is recognition among respondents that "one size does not fit all" and that any changes in law and practice surrounding general meetings, particularly AGMs, should afford companies sufficient flexibility to choose meeting formats that are best for their shareholders and stakeholders.

Companies reported increasing pressure to deal with climate change and ESG issues (including at their AGMs) and the analysis suggests a consensus among respondents that these issues will continue to gain traction as societal pressures increase and evolve in relation to ESG matters generally. However, only a handful of respondents are currently planning a Say on Climate resolution at their next AGM, whereas many are increasing their engagement with investors and other stakeholders and enhancing their climate and ESG-related disclosures.

GC100 continues to engage with various stakeholder bodies, including the FRC and the government, on the future and purpose of the AGM. The findings from this poll provide invaluable insights from FTSE 350 companies and will inform and assist in providing the "companies' voice" as discussions on future best practice progress in the coming months.

End of Document

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Law stated as at 09-Sep-2021

Resource Type Articles