DealMakers - Q1 2020
Becoming a “virtual’ reality: Shareholder e-meetings
by Rabie Smal and Johann Piek
Winston Churchill’s timeless maxim, “never waste a good crisis”, is apt when one considers the impact that the COVID-19 pandemic has had and will continue to have on the shareholder meeting procedures of South African listed companies. The pandemic, together with recent developments in conferencing technology, may very well be the catalyst for a large scale adoption of virtual-only shareholder meetings[1] in South Africa.
Internationally, there has been a strong surge towards virtual-only shareholder meetings since the pandemic reared its head. In many jurisdictions, however, companies are struggling to implement virtual-only shareholder meetings due to uncertainty of their statutory and regulatory requirements. The London Stock Exchange is now lobbying for emergency legislation to allow companies to hold virtual shareholder meetings[2] and the Australian Securities and Investments Commission recently announced that companies may now hold AGMs virtually (despite uncertainty about whether their Corporation Act allows for virtual-only AGMs) which the Australasian Investor Relations Association has welcomed, but called for the change to be made permanent[3].
In South Africa, electronic participation in shareholder meetings is permitted and encouraged. Our Companies Act[4] provides that, unless prohibited by the company’s memorandum of incorporation, a shareholder meeting may be conducted entirely by electronic communication (i.e. a full virtual-only meeting), or one or more shareholders, or proxies for shareholders, may participate by electronic communication in all or part of an in-person shareholder meeting (i.e. a hybrid meeting).
Rabie Smal
Johann Piek
Section 61(10) of the Companies Act further compels public companies to make electronic participation by shareholders reasonably accessible for every shareholder meeting. Interestingly, South Africa’s first virtual-only shareholder meeting was recently held and given the overwhelmingly positive reception it garnered from shareholders, it is expected that many more South African listed companies will follow suit.
Virtual meetings are convenient as shareholders are not required to travel to a designated venue, and can access the meeting from almost anywhere. As a result, it could also increase shareholder attendance, shareholder engagement and voter participation. Given recent technological advances, shareholders are now able to be more than just passive observers during these meetings, as real-time interaction between directors and shareholders is possible. Board members also benefit from this convenience. Virtual meetings are more cost-effective when compared to traditional in-person meetings, as there are no venue rentals, catering or travel expenses (this will generally depend on the shareholder base and past turn-out numbers for such meetings). Virtual-only shareholder meetings will also become cheaper over time as more companies adopt this approach and technology develops even further. Many online platforms allow shareholders to post questions before the meeting, which may enhance question and answer sessions as questions can be considered in advance and addressed more accurately and thoroughly. It is also easier to post questions online than to stand up in front of a meeting.
Some shareholder activists have, in the past, raised concerns that virtual meetings prevent shareholders from having face-to-face confrontations with company executives and their boards, and that companies may be "cherry-picking" or censoring questions put to the board. However, despite these concerns, the benefits still outweigh the possible pitfalls, especially considering that technology now allows for questions and participation in real-time.
Companies should, however, consider these legal and practical issues when deciding whether to implement a virtual-only shareholder meeting:
• Companies should check whether their memorandum of incorporation allows for virtual meetings[5];
• all persons participating in that meeting must be able to communicate concurrently with each other without an intermediary, and be able to participate reasonably effectively in the meeting[6]. We see this as the biggest challenge until technology improves, especially if we have 50 or more persons online;
• the notice of shareholders meeting must provide for the availability of electronic participation and the necessary information to enable access to the medium of electronic communication[7]. If a company’s notice has been issued without a reference to electronic participation, but the company thereafter wishes to hold a virtual meeting, a further notification would be required[8];
• the interests of all shareholders should be taken into account. A virtual meeting can enhance shareholder attendance, engagement and participation, but to enable such increased participation, the virtual meeting would have to be conducted in a way that affords remote shareholders access to participate in meetings in a similar manner as they would have in person. Further, detailed instructions regarding the chosen meeting technology and rules of conduct should be available before the virtual meeting is held;
• adequate technology should be deployed using adequate service providers. There are already several South African service providers offering virtual, interactive solutions;
• the meeting should be accessible through laptops, desktops and/or smart devices such as smartphones and tablets with data connections;
• shareholders should be able to submit questions (before and during the meeting), participate and vote on matters in real-time (although submission of proxies before the meeting should be encouraged to streamline the process);
• there should be adequate cybersecurity and safeguards in place to protect the meeting and voting process from external intrusions; and
• the company should conduct several test runs before the meeting is held, to ensure that everything will run smoothly once the meeting starts.
The above list is not exhaustive, and a company may need to consider additional aspects unique to their business and shareholder base.
In the rush to the new normal, now may be a very good time for South African listed companies to re-assess their shareholder meeting procedures to ensure that they are in a position to take advantage of the benefits that virtual shareholder meetings offer.
Smal and Piek are Corporate Financiers at PSG Capital.
[1] The concept was explored in our initial article “Virtual-only AGMs and e-Voting: an inevitable reality?”, dated 2019-08-30, Johann Piek,
[2] https://news.sky.com/story/coronavirus-london-stock-exchange-leads-push-for-virtual-agms-11961999
[4] Section 63(2) of the Companies Act, No. 71 of 2008, as amended.
[5] Ditto
[6] Ditto
[7] Section 63(3)(a) of the Companies Act.
[8] The company will need to provide all shareholders with notice of such detail, reasonably in advance of the meeting, using the prescribed methods of delivery and the deemed delivery provisions set out in Table CR3 of the Companies Regulations, 2011. Consideration should be given to whether any exclusion or change in a company’s notice could be regarded as a material or immaterial defect, as a material defect could invalidate the meeting as per section 62(4) of the Companies Act.
