Company General Meetings and Shareholder Communications
The Consultation Document issued by the
Company Law Review Steering Group.
Comments from
The Association of Chartered Certified Accountants
Introduction
ACCA is pleased to have this opportunity to respond to the Consultation Document ‘Company General Meetings and Shareholder Communications’. Our principal conclusions are set out in the following summary.
Executive Summary
- The AGM is commonly treated, by both companies and their shareholders, as a routine compliance chore. As a result, many shareholders, both private and institutional, feel that there is little incentive for them to participate in the meeting and attendance is often poor. Just because the AGM in its current format tends to be unsatisfactory, however, is no reason for the law to marginalise it. Rather than allowing public companies to opt out of the AGM, the Companies Act needs to reinforce its status as the principal means by which companies, particularly public companies, communicate directly with their shareholders.
- If the AGM is to realise its potential
as a key organ of corporate governance, as the Combined Code on
Corporate Governance infers is desirable, then shareholders need
to be made to feel that, by participating in it, they are
playing an active and significant part in the governance of the
company. Statute law and best practice both need to encourage,
in various ways, the active interest and participation of
shareholders.
- One reason for the poor perception of
the AGM is that the law does not attribute to it any distinctive
character or features. The Companies Act needs to treat the AGM
as the focal point of the company’s calendar and identify
a range of standard business to be transacted at the AGM. The
nature of all this standard business should be
governance-related. It should include consideration of the
company’s accounts, the election of directors and
provision for questions to be put to the board on aspects of
company policy and results. It should also be a requirement that
the company’s accounts are laid before the AGM before they
are filed.
- The right of companies to use audio-visual technology to enable individuals in adjoining locations to participate in a valid general meeting should be formalised and developed. Companies should be able to hold their ‘core’ meeting at a single venue, as now, but to provide audio-visual communication links so as to allow individuals at other, remote locations to ‘attend’ and participate in the meeting. To help in legitimising this extended concept of a ‘meeting’, the Companies Act should codify the essential features of a valid meeting.
Responses to specific questions
Our responses to specific numbered questions posed in the Consultation Document are set out below.
1 While the AGM in its current format is often viewed as being unsatisfactory by companies and their shareholders alike, this is not sufficient reason for allowing public companies to dispense with the AGM altogether. Rather than provide encouragement to public companies to reduce the scope for shareholders to participate in company activities, more should be done to encourage companies to look upon the AGM as an opportunity for them to involve their members, who are after all the owners of the company, in the corporate governance process. The effective abolition of the AGM for public companies would in any case be contrary to the spirit of the Combined Code, which recognises the potential that the AGM offers for mutually-beneficial two-way communication between company and shareholders.
3 We do not support the idea of allowing public companies to dispense with the AGM with the support of a specified majority. In our view, the AGM should remain a standard legal requirement for such companies.
5 Given developments in communications technology, which have caused the courts to refine their interpretation of what constitute valid meetings and communications, it would be opportune for the review project to consider setting down in law what are the essential features of a valid meeting. In our view, provided that interested parties can participate in a meeting held via electronic media on the same basis that they could have done in a meeting held in a single physical venue, a meeting conducted in this way should be valid. In saying this, however, it will be borne in mind that the administrative and technological costs to companies of arranging secure, multi-location general meetings are likely to be considerable.
6 To be valid, multi-location meetings should replicate as far as possible the conditions that apply in physical meetings. Accordingly, audio and visual communication should be a standard requirement.
7 Although technical problems will need to be overcome, the internet offers the possibility for large numbers of disparate individuals to participate in general meetings. Provided a medium of communication allows core criteria for a valid meeting to be met, it should be regarded as acceptable for Companies Act purposes.
8 Given the speed at which technology is changing, it would be sensible, we believe, for the Companies Act to set out a list of criteria which together determine what constitutes a valid meeting but to leave sufficient scope for different media to be used. These criteria need to take into account the practical implications of meetings administration, for example the need to restrict attendees to those entitled to attend and the need to keep a record of those attending.
9 A decision on whether to hold an AGM using remote communication should be able to be taken by the directors.
12 We believe that the concept of the ‘virtual meeting’, which would involve no direct contact between shareholders and directors, veers too far away from what we understand to be the fundamental character of a meeting. The concept as presented appears to have substantial potential as a non-statutory consultative mechanism but we would not favour it as a vehicle for holding the AGM.
15 We agree that the AGM should be held within the company’s accounts filing period. We recommend further that companies should not be permitted to file their accounts at Companies House or otherwise publish them until those accounts have been laid before the AGM.
16 We do not see any merit in requiring new companies to hold an AGM within twelve months of incorporation.
17 We agree with the suggested list of standard items for inclusion on the notice of a company’s AGM. There should also be provision for members to put questions to the board on issues relevant to the company’s results and activities.
18 The fixing of the auditor’s remuneration is rightly a matter for the directors, or for some other procedure provided for by the company’s constitution, and should not form part of AGM business. Shareholders will retain the right to review the auditor’s fee for the period under review at the AGM via the company’s accounts.
20 It is consistent with the need to establish for the AGM a character of its own for only standard business to be prescribed for transaction at it. The matters referred to in paragraph 37 are items of specific, non-standard business.
21 No.
22 As a matter of principle, it should remain a basic shareholder right to be able to attend and vote at company general meetings. As the document acknowledges, restriction of this right to a particular level of shareholding would send a wrong signal at a time of increasing acceptance of the importance of stakeholder interests in the governance of limited companies. Individuals or groups of individuals who wish to express opinions and ask questions at meetings should have the same entitlement to do so as any other member. It is thereafter a matter for the board and the chairman to ensure that the meeting is conducted in good order and that no individual or group is allowed to take up a disproportionate amount of the meeting’s time.
23 We see no reason to change the current minimum notice period.
25 We do not feel it is necessary to prescribe in the meeting notice the minimum information to be given on resolutions. It would be better to allow companies to retain the current flexibility.
31 We agree with the suggestion to allow companies to allot the sole right to propose the adjournment of an AGM to their chairmen.
32 We do not favour the abolition of voting by hand at AGMs. While it is certainly the case that all important and potentially divisive issues are and will continue to be subjected to a poll vote, it remains the case that those individuals who attend appreciate the opportunity to vote by hand on the basis that it provides the appearance of participation in the company’s decision-making process. If, as we believe, the point at issue in this consultation is, to a great extent, how to encourage private shareholders to believe that there is a reason for their participation at the AGM, the perception of involvement provided by the hand vote should not be taken lightly. If the right to vote in this way were to be removed, many people might feel that there would be less rather than more reason for them to attend AGMs.
33 Although the suggestion that voting should start at the conclusion of the AGM is logical in principle, it would be logistically impractical and unjustifiably expensive. It would require companies to conduct a second mailing to shareholders. This would need to include an account of any debate which had taken place at the meeting. This is in itself a potential source of conflict.
36 We do not see that amendments can be adequately accommodated in a deferred voting system.
37 We suggest that many shareholders would find it a welcome option to be able to register an abstention.
39 Yes.
40 We agree that directors should be allowed to refuse to circulate resolutions if they have reason to believe that they are defamatory to a named party or parties. As regards refusal on the other suggested grounds, namely in respect of resolutions which are ‘vexatious, offensive or trivial’, we urge caution. Any judgement of whether or not a particular motion falls within any of these criteria risks being subjective and vulnerable to accusations of board partiality. For this reason, we would prefer to see imposed minimal powers to prevent the circulation of qualifying resolutions. If companies have substantial concerns about a particular resolution, they can always seek directions from the court.
42 We see no reason why a properly appointed proxy should be prevented from speaking at a meeting of a public company or from voting on a show of hands at a meeting of either a private or a public company.
43 We agree with the suggestion to abolish the concept of the extraordinary resolution, which is an unnecessary complication of company law.
44 We suggest that, instead of retaining different notice periods for AGMs and EGMs, there should be a single notice period of 21 days for both types of meeting. Since EGMs usually consider special resolutions, which themselves require 21 days notice, the separate notice period is usually meaningless.
46 Even if it were decided to introduce post-meeting voting for AGMs, we do not believe that this should be extended additionally to EGMs. The law should regard AGMs and EGMs as different entities with different characteristics.
48 Again, we believe that shareholders’ right to have their resolutions circulated at the company’s expense should not ordinarily be extended to EGMs.
49 Yes.
50 Yes.
52 We consider that facilitating electronic voting is likely to prove one of the most practical ways of encouraging greater participation on the part of shareholders.
53-55 While we are sympathetic to the possibilities discussed in these questions, the subject matter appears to us to be a matter of good practice for companies themselves and outside the scope of the company law review.
56 We would not wish to see any delegation of rule-making authority from the Secretary of State.
57 We suggest that one way in which companies might encourage higher levels of participation at AGMs is by their being more aware and considerate of the needs of their shareholders. There are requirements in insolvency legislation for a person convening a meeting of creditors to have regard, in fixing the venue, to the convenience of those entitled to attend. It may be worthwhile to consider whether companies should be similarly required to take into account the convenience of shareholders in setting the date, time and venue for their AGMs.