The COVID-19 pandemic has caused fear and confusion for all investors, and market volatility reflects this uncertainty. Just as the response to COVID-19 needs science, the markets need data and transparency. Rather than ramping up disclosures, too many companies around the globe have begun to postpone or cancel their Annual General Shareholder Meetings (AGMs) altogether. As of March 26, International Shareholder Services (ISS) reported 400 adjourned or canceled AGMs globally. This is a mistake.
Times of uncertainty call for peak disclosure. Companies need to provide data and direction, and they need to do it on schedule. Shareholder meetings are critical opportunities for companies to communicate with their investors and stakeholders, and maintaining a regular schedule by adapting rather than canceling meetings is key.
Companies should move now so that they can host virtual shareholder meetings this year.
Given increasing restrictions on travel, virtual AGMs represent an opportunity for companies to keep their management and staff safe while also keeping shareholders informed. Nobody knows how long the pandemic and isolation policies will last, but we do know different countries have different trajectories, so shareholders will likely be affected over many more months, even as some countries emerge from crisis. The sooner companies prepare their virtual capabilities, the better equipped they will be to host successful meetings.
And, in fact, technology has come a long way to enabling more productive conversation in virtual meetings. Many of us suddenly working from home have learned that the technology to host interactive virtual meetings with multiple participants is not perfect, but it’s pretty good and will likely get better as demand has increased exponentially.
Beyond glitches experienced by users, there likely isn’t much risk to virtual AGMs—information is public, and no proprietary data is shared. Most virtual services allow participants to ask questions—which is great since interactivity is a key element of a successful virtual meeting. And the reduction in the carbon footprint from less travel and printing is an added benefit.
This is the right time for companies to pilot virtual AGMs, perhaps becoming more comfortable hosting hybrid meetings in the future. Combining in-person and virtual meetings is still the best option. But by hosting virtual meetings this year, companies may find that they could enhance the “in-person plus digital” experience at future meetings.
To be sure, in some cases this is easier than others. Virtual meetings aren’t actually allowed in many cases—an outdated sentiment in today’s environment. We call on regulators to quickly remove barriers to virtual shareholder meetings and clarify the rules for companies so that they may provide timely information to investors in a time of market turmoil.
Many investors believe that virtual meetings are insufficient, and that in-person meetings facilitate vital back-and-forth conversation between directors, management, and shareholders in a way that isn’t possible virtually. The US-based Council of Institutional Investors, for example, suggests that virtual meetings should be used only as a supplement to in-person meetings, and some company bylaws also require in-person meetings. However, boards should consider granting exceptions this year.
Regulations in some countries prohibit companies from hosting virtual or hybrid (in-person plus virtual) meetings. Broadridge, which has published a white paper on best practices for virtual AGMs, reports that 20 states in the US prohibit virtual-only shareholder meetings. There are similar prohibitions in some emerging markets as well. In Brazil and India, for example, meetings must take place in-person, though broadcasts of those meetings are allowed; this presents a major issue for shareholders for the 2020 AGM season.
Regulators should look to those countries that have been experiencing COVID-19 for longer periods. In China, the Shenzhen and Shanghai stock exchanges have been encouraging their listed companies to host virtual meetings. More recently, the Philippines, Thailand, and Egypt are also promoting virtual meetings.
While there has been some good movement toward virtual meetings this year, the rules in many countries, including the United States, are still unclear. Exchanges and regulatory bodies should remove barriers and communicate to companies what they can do remotely, without fear of legal action.
Companies should not be postponing AGMs now simply because there is regulatory ambiguity, or their own bylaws do not allow for virtual meetings. Companies need to advocate for clear direction. No one’s health should be endangered. But companies should neither delay valuable disclosures nor deprive shareholders of their democratic voice. That would be a mistake.Opinions of the authors do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
Teresa C. Barger, co-founder and CEO of Cartica, spent 21 years at the International Finance Corporation investing in emerging markets companies in nearly all regions of the world, with a focus on equity and some debt investments. At IFC, among other positions, she was division manager for Africa, deputy director of Credit/Investment Review, and director of Private Equity and Investment Funds, where she created the first index for EM private equity, co-founded the Emerging Markets Private Equity Association (EMPEA), developed the first two corporate governance funds in the Emerging Markets for Korea and Brazil, and was subsequently director of Corporate Governance and Securities Market Development. Before joining IFC, Barger was with McKinsey & Company. She is a member of the Council on Foreign Relations and serves on the boards of EMPEA, American University in Cairo, and Gazelle Finance (an SME fund for Eurasia). She also serves on the Advisory Councils for the Pacific Pension and Investment Institute and the Global Corporate Governance Forum.
Aeisha Mastagni is a Portfolio Manager within the Corporate Governance Unit of the California State Teachers’ Retirement System (CalSTRS), the nation’s largest teacher retirement fund. Mastagni’s main areas of focus are the corporate engagement program, executive compensation, selecting and monitoring managers in the activist manager portfolio, and working with regulatory authorities on market-wide issues. She is also on the board of directors at the Golden 1 Credit Union, and on the board of the Council of Institutional Investors.