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Corporate Governance

United Kingdom: Evolution of the AGM? FRC publishes review and recommendations

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In brief

The FRC has this week published a paper on AGMs and best practice, based on their review of 2020 AGMs (202 AGMs of FTSE 350 companies between March and August). The fundamental message is that it is important for companies in the context of AGMs to facilitate

  1. engagement with all shareholders and
  2. board accountability

The FRC refers to the traditional approach to AGMs as “a straitjacket to progression” and views the pandemic as having raised issues “that the UK was already failing to address.” The approaches taken in 2020 have included “some excellent practices that can be translated into next year’s AGM season, whether or not, we are subject to restrictions.” The FRC advocates “a significant increase in the use of technology that facilitates robust virtual interaction during an AGM” and makes a number of suggestions for companies to consider.

In more detail

Arguably the most radical and interesting of these is asking companies to consider splitting the traditional AGM into two events, particularly in the current climate. This suggestion stems from the FRC emphasising that all shareholders should have the ability to hear from the board before voting on resolutions, so that it is best practice for companies to make every effort to ensure that shareholders should have the ability to vote following presentations from the board. If the AGM is split into two events, one could be for presentations, Q&A, and consideration of matters in the annual report, and the second (being the technical AGM for Companies Act purposes) for voting on resolutions raised. The first event could be delivered via an audio or visual presentation with the facility for questions, whilst the second could be a much smaller event held with a quorum if necessary.

Annex 1 to the paper sets out suggested best practice guidance for companies ahead of next year’s AGM season, including the following:

  • Prepare now
    • explore options and costs for use of technology
    • consider whether your articles need amending and consult with investors and lawyers
    • discuss options with your registrar
    • contingency plan for if technology fails for some or all participants before or during AGM
  • Prior to the meeting
    • create a dedicated area of your website for AGM information and keep this updated, similarly consider dedicated contact details for questions regarding the AGM
    • issue clear and timely instructions to shareholders on how to submit Q&A, how to join any virtual element and any registration/verification requirements
    • use webcasts rather than audio-only calls
  • Questions at the AGM
    • facilitate real time questions at the AGM, virtually as well as physically, and make shareholders aware if these are to be moderated
    • upload Q&A onto the website prompt after the AGM
    • give sufficient time for shareholders to submit questions ahead of the AGM (right up to the morning of the AGM) and do not unreasonably limit the number of characters allowed for a question
    • if questions are to be grouped, flag this in advance, best practice would be to contact individual shareholders whose questions are to be grouped to ensure they are content
    • give shareholders the opportunity to follow up on the given answer to ensure questions are properly addressed
  • Webcasts
    • ensure clear instructions are given (particularly where there are options to log in as a guest or shareholder, to minimise risks of shareholders using the wrong option)
    • try to limit the need to download software where possible
    • where voting is available and the technology allows, shareholders should be informed that votes can be changed during the meeting
  • Voting by proxy
    • try to facilitate the ability to vote after board presentations and Q&A have been seen
    • where this is not possible and voting can be via app at the AGM, try to enable shareholders to change their vote
    • ensure clear and timely instructions are issued with reminders of deadlines and consider using both electronic and hard copy proxy forms

The FRC is conscious of the company law issues around holding virtual AGMs and stated that they will work with BEIS to “consider what measures may need to be brought forward to ensure that AGMs can take place either virtually or as a hybrid during 2021 and how additional clarity can be provided on the interpretation of s.311 and s.360A of the Companies Act 2006 to introduce flexibilities for all companies”.

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Author

Robert Adam is a partner in the Firm’s Corporate Group in London and is the Corporate Know How and Training Partner. He joined Baker McKenzie as a trainee in 1998 and became a partner in 2008. Robert was seconded to the Takeover Panel for two years and also spent seven months as a partner on secondment at British American Tobacco. Robert sits on the Law Society Company Law Committee and is listed in The Lawyer's Hot 100.

Author

Nick is a partner in Baker McKenzie's London office and a member of the M&A and Corporate Finance teams. Before joining Baker McKenzie, Nick was a partner in another international law firm for over 14 years and was the head of Middle East and based in Dubai from 2007 to 2010. Nick spent one year on secondment to a San Francisco law firm between 1999 and 2000.

Author

Adam is a partner in Baker McKenzie's London office and a member of the M&A and Corporate Finance Teams. Before joining Baker McKenzie, Adam was a corporate partner at a Magic Circle law firm in London. He has also spent time as the chief legal and strategy officer at a machine learning and data science growth stage company.

Author

Nick O'Donnell is a partner in Baker McKenzie's corporate department in London. He has over 15 years' experience advising on a wide range of corporate finance transactions and is recognized in his field by The Legal 500. He has spent time on secondment with Goldman Sachs, Morgan Stanley, Macquarie and Mubadala. Although London based for the majority of his career, he has previously been located in Abu Dhabi and New York. He regularly publishes articles, and has been quoted and interviewed on the press and TV, on matters relating to the London market.

Author

James is a Partner in the Corporate Finance Department. James joined Baker McKenzie as a Partner in January 2016 from another multinational law firm, having been predominantly based in the London office, but also having spent time in the New York and Singapore offices. He began his career in the Sydney office of a renowned law firm and has spent time as a consultant to Barclays' M&A Legal team. James is a member of TheCityUK's Capital Markets Group.
James is a public M&A practitioner, with deep blue-book experience, having acted for international bidders seeking control of Code-governed companies, for UK targets and also as cash confirmation counsel to financial advisers across the City. He has acted as international counsel for both bidders and targets involving companies listed in other European jurisdictions.
On the capital raisings side, James has been prolific over the years, acting for both issuers and underwriters on IPOs, rights issues, placings and open offers both in the UK and across EMEA. Issuers value his proactivity and commerciality and banks his depth of knowledge and practical experience of a multitude of forms of underwriting and transaction structures, as well as the UK sponsor regime. Beyond London, he has advised on equities transactions involving issuers listed in Amsterdam, Brussels, Copenhagen, Frankfurt, Johannesburg, Paris, Saudi Arabia, Stockholm, Tallinn and Warsaw.

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