DealMakers - Q2 2019
Virtual-only AGMs and e-Voting: an inevitable reality?
by Johann Piek
The times they are a changin’. Bob Dylan’s famous words ring true when considering the ever growing impact of technology on our everyday lives. In the case of companies, these impacts may involve exciting new growth oppor-tunities, but also extend to more mundane matters. The annual general meeting (AGM) process is one such aspect, with electronic participation now being a regular feature of public company AGMs the world over.
In the case of South African (SA) listed public companies, electronic participation by shareholders at AGMs was greatly expanded through the requirement introduced in 2011 by the new Companies Act, that shareholders’ meetings be reasonably accessible within SA via electronic participation. Since then, and in line with international trends, many SA-listed public companies have opted for a hybrid approach, allowing shareholders to participate in AGMs in person, at the physical venue, or remotely via electronic channels, including teleconference call dial-ins and live webcasting, with the latter gaining popularity in recent years.
The question arises whether SA-listed public companies should go further and embrace virtual-only AGMs where shareholders attend the AGM exclusively using a web-based platform which allows them to participate and vote electronically in real-time, without the option of a corresponding physical AGM.
The Independent Communications Authority of South Africa recently reported that smartphone penetration in SA has nearly doubled to over 80% in the past two years. Couple this with the growing focus on stakeholder-inclusivity and now may be an opportune time for SA public companies to start considering the adoption of virtual-only AGMs. A company considering this would, of course, need to take into account the composition of its shareholders and whether some may still wish to attend and participate at a physical meeting.
It should be noted, however, that due to the shift to virtual-only AGMs being in its infancy, regulations and codes applicable to shareholder meetings, and specifically AGMs, will have to be considered and tested to ensure compliance. It is to be hoped that exchanges will be receptive to these efforts to facilitate shareholder participation.
Companies would also need to consider carefully whether the benefits of a virtual-only AGM would outweigh possible pitfalls. Potential benefits could, for example, include increased shareholder access and participation; reduced carbon footprint due to not having to travel to a physical venue; saving on venue-related expenses; meeting quorum requirements more easily; and being seen as tech-savvy and innovative. Possible pitfalls may include technology failure, virtual security breaches or the perception of shareholders that management is “cherry-picking” or censoring questions put to the board.
Companies examining the possibility of virtual-only AGMs could, for instance, consider the streamlined process followed by the luxury accessory brand, Jimmy Choo plc, which in 2016 became the first listed company to adopt this approach in the UK, and which involved the company giving each shareholder a unique number and password to dial in order to ask questions, as well as access to an app or web browser from which such shareholders were able to cast their votes and also submit written questions.
Several South African service providers already offer virtual, interactive solutions which could be tailored to meet a company’s requirements. Key aspects to bear in mind when considering virtual-only AGMs include:
1. the need to amend the company’s memorandum of incorporation to allow for virtual-only AGMs, such amendment requiring shareholder approval by way of a special resolution;
2. the virtual communication channel to be employed by the company must ensure that all persons participating in the virtual-only AGM will be able to communicate concurrently with each other without an intermediary and participate reasonably effectively in the virtual-only AGM;
3. the company’s notice of AGM will have to contain detailed instructions as to how the shareholders will access, participate and vote at the virtual-only AGM. There should be no room for any uncertainty. “Dry-runs” would need to be conducted with the service provider to ensure a smooth process on the day of the AGM;
4. comprehensive guidelines dealing with the obvious shareholder concerns would go a long way to putting shareholders at ease with the virtual communication channel. These guidelines should address possible contentious matters like how shareholder questions will be recognised; and
5. the establishment of a technical support line to assist shareholders with queries relating to the technology used to access the virtual-only AGM.
As the old adage has proven time and time again, “the only constant is change”, and despite remaining fairly resilient in the face of the digital onslaught, it is likely just a matter of time before the shift towards virtual-only AGMs occurs on a large scale. Although there may be technology glitches and systems that will have to be tested, now may be an ideal time for SA listed public companies to explore this option.
Piek is a corporate financier at PSG Capital.