Annual General Meetings ("AGMs") are failing to meet their traditional objectives and the law governing them may require radical changes to rectify this. A Consultation Document entitled "Company General Meetings and Shareholder Communications" dated October 1999 issued by The Company Law Review Steering Group looks at the problems.
Purpose of AGMs - Theory
AGMs are often the only formal link between shareholder involvement and a company's management and, as such, have been traditionally intended to achieve three principle objectives. These are:
(1) the provision of information by management to shareholders; (2) the questioning of management by shareholders and discussion and debate of formal business of the Company; and (3) the conduct of the company's affairs by passing formal resolution.
Purpose of AGMs - Practice
AGMs are generally regarded, however, as ineffective in achieving these objectives because:
for listed public companies, - attendance is almost universally a tiny proportion of a company's shareholders. Many shareholders cannot attend because of geographical difficulties and/or because AGMs are usually held during business hours; in many cases around 75% of the votes are held by financial institutions who, by information exchanges and discussions with the Company before an AGM, have had their questions answered, already determined how to vote (and indeed given their proxy to the Chairman); AGMs may be used by dissatisfied pressure groups to air their grievances so as to cause severe disruption. for private companies and unlisted public companies, very often the majority of the shareholder votes will be held by the directors themselves; for all companies and of course particularly for listed public companies, AGMs involve substantial time and money costs.
Suggested Changes
The Steering Group recognises that some of these failings have been addressed, to a degree, for private companies by their ability under the Companies Act 1985 to elect, by unanimous agreement, to dispense with holding AGMs. The Steering Group suggests that there are two ways of further combating the failings of AGMs - by extending the ability to dispense with AGMs of public companies and/or by altering the law governing the holding of AGMs. In respect of the former, it is stated that any such step would have to be accompanied by laws to provide additional comfort in certain areas. For example, all shareholders should have access to appropriate information regarding performance/prospects of the Company, and shareholders should also have the opportunity to debate issues and question management (possibly by electronic means or through a requirement that records of advance meetings with substantial shareholders are made available to all the shareholders). In addition, shareholders should be able to vote on matters put to them by management, possibly by post or electronically.
The Steering Group suggests that a public company could dispense with the requirement to hold an AGM if 90% of the votes of the Company are in favour (unanimous approval being unrealistic, and 75%, the special resolution threshold, being too low as it could possibly be reached by votes of institutional shareholders alone) and that 10% of the votes would subsequently have the power to reintroduce the AGM requirement.
In respect of other alterations to the law of AGMs (either in addition to or as an alternative to the above) the Steering Group puts forward the following possibilities:
simultaneous meetings held in a number of locations to constitute one AGM; the ability to hold "virtual" interactive AGMs by electronic means held over several days; statutory clarification of the business to be transacted at an AGM. There have only been two submissions to the Steering Group's report since October 1999, one from The Law Society and one from The Institute of Chartered Accountants in England and Wales. Both submissions agreed that all companies should be given the right to dispense with AGMs, but believed that the proposals discussed in the Steering Group's report were too general and that further consultation should take place as more detailed proposals emerged.
The Steering Group will be issuing a further consultation document this month. We will keep clients informed as the review progresses.
The information contained in this article is intended only to provide a general guide to the subject matter. Advice from specialists is still recommended for your specific requirement and particular circumstances.