AGMs: Going online to virtually dodge accountability?

It may seem a bit of a stretch, but with increasing numbers of companies pushing for online-only AGMs, what are the chances of shareholder capitalism drifting towards the sort of autocracy the US president is trying to popularise in the political sphere?

Before you guffaw at the suggestion, who would have thought, as recently as a year ago, that the world would be witness to the sort of jaw-dropping assaults on democracy that appear to have become commonplace in the US?

According to recent reports from the UK’s Financial Times, banking group HSBC is thought to be the latest London-listed company checking out whether it can shelter its nervous board members from pesky shareholders by abandoning the in-person AGM and offering and providing an online-only facility.

The London-listed banking group, with strong ties to Hong Kong, hasn’t had it too easy at recent AGMs. Like many banks across the globe, it’s been targeted by environmental groups, in particular the no-holds-barred Extinction Rebellion. So relentless were the protesters that in 2023 HSBC switched its AGM venue from the easy-to-access, swanky InterContinental London Hotel to Birmingham. To little avail – the protesters followed it there.

Luxury retailer Jimmy Choo appears to have been the first UK-listed company to hold an online-only AGM. That was 2016. The following year, it was acquired by Michael Kors Holdings.

Only four other UK companies have tried it: Clarksons, Tui, Aston Martin and Haleon.

Right now, South Africa seems to be a standout in the world of AGMs. Without the guardrails provided by a more engaged investment community, JSE-listed entities have taken it upon themselves to loosely interpret the Companies Act’s guidelines on AGMs. From a situation – in pre-Covid 2019 – where digital offerings were almost unheard of, we now have a situation where companies offering shareholders the option to attend in person or online are about as rare as companies reporting a reasonable remuneration policy.

The good news for now, according to law firm White & Case, is that despite the increased interest in online-only events and the fact that most companies have made the required amendments to their memorandums of incorporation, physical AGMs are expected to remain the most prevalent form of AGM.

Impact on accountability

But that might soon change. According to the FT, the UK government is set to clarify precisely what is meant by the “place of meeting” referred to in the UK Companies Act. To date, it’s been interpreted as a physical place, but some nervy board directors and their advisers contend that it could as easily be a metaphysical – or online – place. The fear is that once a critical number of companies go the virtual-only route, hundreds more will quickly follow. That’s pretty much what happened in South Africa.

The UK Investment Association, which has been the primary force in blocking a drift to virtual-only meetings, is concerned about the impact on accountability in the event of a lax clarification. The association encourages the use of hybrid meetings, which are surprisingly uncommon in the UK, but fears the virtual-only option gives directors too much scope to control the proceedings.

One of the most popular justifications for going virtual is expense. Though many directors express frustration at shareholder activists and protesters, few directors are willing to describe them as the primary motivation. Cutting costs sounds like you may be depriving shareholders of their rights – but it’s for their own benefit.

But you have to wonder, if costs are such an issue, why not go the whole hog and delist? Why bother with a listing if boards are so intent on minimising costs and scrutiny? Surely, the argument that virtual-only meetings are a way of saving costs could be extended to the entire listing. And given that so few companies currently use a listing to access funding – indeed, they are more likely to be net distributors of cash to shareholders through dividend payments and share repurchases – what’s the point of a listing?

Of course, you could use it to do what Warren Buffett did so well: create massive wealth for shareholders. It’s probably no coincidence that this outstanding wealth generator was an enthusiastic supporter of the value of AGMs. So enthusiastic that far from diminishing its status, he made the Berkshire Hathaway AGM the central event of his company’s annual calendar.

Instead of shirking from public shareholder engagement, Buffett used the unique opportunity provided by in-person AGMs to inform shareholders about their investment.

If shareholder capitalism is to survive, it will need more leaders like Buffett.