Hybrid, virtual or in-person? To ensure they are well-prepared, boards need to be aware of expectations and developing trends that could change the way AGMs are held.
The single biggest change to Australian annual general meetings (AGMs) has been the introduction of virtual and hybrid formats. Share registry Link Group has been credited with holding the first true hybrid AGM in 2016, although it was COVID-19 restrictions that changed the landscape by leaving companies with little choice but to adopt a technology-driven approach. The benefits quickly became obvious and, as a result, a significant number of AGMs are now conducted either entirely online or in a hybrid format that combines in- person and virtual attendance.
The AICD welcomed permanent amendments to the Corporations Act 2001 (Cth) in 2021, which allow companies to use technology for meetings, document execution and distribution of meeting materials. These reforms, introduced during the COVID-19 pandemic, have modernised Australian corporate law, providing companies in both the NFP and ASX-listed sectors with the flexibility to engage more effectively with shareholders.
The Statutory Review of the Meetings and Documents Amendments has released its final report assessing the impact of legislative changes made to the Corporations Act 2001 in 2021–22. The review considered the effectiveness of the amendments to enable hybrid and wholly virtual meetings, the electronic distribution of meeting- related documents and electronic signing and execution of company documents — with a particular lens on the impacts to shareholder participation, transparency and corporate governance standards.
The review recommended several key changes to corporate governance practices, particularly regarding the use of virtual and hybrid AGMs. Publicly listed companies should continue to be permitted to hold physical, hybrid or virtual AGMs, provided their constitutions allow it, while other entities — including not-for-profits and proprietary companies — should be allowed to hold virtual meetings without the need for constitutional amendments. The review also endorsed the retention of electronic signatures and documents, recognising the growing reliance on digital tools. The review recommended that a further review be undertaken in five years to assess whether the requirement for constitutional amendments for public companies can be removed. Additionally, better practice guidance will be issued by industry bodies and regulators, with the AICD and the Governance Institute of Australia (GIA) set to update their resources in line with the latest trends. The government is expected to provide its response to the review findings and recommendations before the end of the year.
In its July submission responding to the statutory review, the AICD noted the amendments have been received positively overall by AICD members and have provided companies with the opportunity to reinvigorate the AGM format, through removing geographical and physical barriers to attendance and increasing engagement with shareholders or members.
However, the AICD’s submission to the ongoing amendments review highlighted certain areas where reforms could be improved. A key recommendation was to ensure the legislation remains technology-neutral and non-prescriptive. This would allow companies to choose the most suitable meeting format without being restricted by burdensome or outdated requirements. The AICD emphasised the importance of avoiding prescription in the legislation that mandates a certain meeting format, especially given the diverse range of organisations covered — from small NFPs to large ASX-listed firms.
While hybrid meetings are currently the most popular format, a growing number of companies, particularly ASX-listed ones, are reverting to physical-only meetings. Meanwhile, wholly virtual meetings, despite high interest, have been rarely adopted by ASX companies since the pandemic. The AICD suggested changes could be made to reduce barriers, such as replacing the requirement for attendees to ask questions both “orally and in writing” with the option of “orally or in writing” and removing the need for a company’s constitution to expressly permit virtual meetings.
The ability to send meeting materials electronically has resulted in significant cost savings, while electronic document signing has improved efficiency. However, the AICD also called for harmonisation of state and territory laws regarding statutory declarations and deeds to further streamline processes across Australia.
Globally, hybrid and virtual meeting formats have also become more popular. The OECD 2023 Corporate Governance Factbook reported 37 of 49 jurisdictions allowed wholly virtual meetings, while 40 permitted hybrid meetings. Similarly, World Bank data collected from 153 economies in 2020 showed 84 per cent of jurisdictions allowed virtual meetings. Virtual-only meetings, however, often face different administrative requirements.
Retail shareholders
One reason for the high uptake of virtual meetings in Australia is the significant role of retail shareholders. Approximately 7.7 million Australians (38 per cent of the adult population) hold on- exchange investments. Under the country’s Holder Identification Number model, retail shareholders directly receive meeting-related documents, which likely boosts their engagement. In contrast, countries like the US and UK, where custodians often serve as intermediaries between companies and shareholders, see less direct participation from retail investors in member meetings. As a result, virtual and hybrid meetings are seen as more essential in countries like Australia, where retail shareholder participation is higher.
Stakeholder positions
Both the Australian Council of Superannuation Investors (ACSI) and the Australian Shareholders’ Association (ASA) strongly support hybrid AGMs.
“We aren’t fans of in-person-only AGMs, and we also see problems with an online-only format,” says ACSI CEO Louise Davidson AM GAICD. “For example, it’s easier for companies to shut down a discussion or cherry-pick the questions they want to answer. That’s why we don’t support changes to a company’s constitution that would permit companies to hold wholly online AGMs and would recommend that our members vote against them.”
For ASA CEO Rachel Waterhouse, a webcast isn’t enough. “A webcast is like watching Netflix,” she says. “You can’t engage with it, vote or ask questions. We understand an interactive meeting involves an extra cost, and a hybrid may not work for a small organisation with only a few retail shareholders. But in general, a genuine hybrid meeting shows respect for shareholders, enabling attendance by older and working people, and those who can’t travel. Encouraging companies to offer these kinds of meetings is one of our key issues.”
Remuneration and record strikes
The King & Wood Mallesons (KWM) Deep Dive into ASX 200 AGMs in 2023 report highlighted a significant focus on strikes and protest votes, particularly against remuneration reports. It was a major focus for shareholders in 2023, with the strike rate on them doubling to 16 per cent. Protest votes against these reports were often driven by broader concerns than executive pay itself. Despite the increase in strikes, most remuneration reports still received strong support, with 65 per cent of ASX 200 companies seeing more than 90 per cent of votes in favour, down from 83 per cent the previous year. The increase in strikes highlights growing frustration among some shareholders over corporate governance and performance. For example, investors at several companies used their vote on remuneration reports to express dissatisfaction with leadership changes, declining share prices or perceived governance failures.
Director elections and re-elections also saw increased scrutiny. While most director candidates still received strong support, there was a notable rise in the number of candidates receiving less than 95 per cent of the vote. This indicates shareholders are more willing to withhold support when they perceive governance failures or when a candidate is tied to a company’s poor performance or reputational damage.
Shareholders were particularly critical of directors who were seen as responsible for governance issues, such as cybersecurity incidents or failures in risk management. Andrew Thain, Sodali & Co senior MD, anticipates a continuing rise of dissent against remuneration reports and directors, especially where there is a disconnect between pay outcomes and poor performance.
“This includes where lower returns are a result of factors beyond the control of management, such as tough economic conditions, sector underperformance or commodity prices,” he says. “Some governance-focused investors will vote against pay rises that outpace wage growth in the broader economy.”
The 41 remuneration strikes we saw last year set a record as the highest number since the introduction of the “two strikes” rule in 2011. “While many of these were related to one-off remuneration decisions that shouldn’t come up again, such as retention payments or board discretion in favour of executives, we expect the elevated number of strikes to continue during the 2024 AGM season,” says Thain. “When companies incur a strike, it kicks off an important process of stakeholder engagement, including testing revised pay plans with proxy advisers and key investors, with the ultimate aim of realigning pay with performance and securing shareholder approval at the next AGM. But there has already been a record number of strikes in the first half of 2024, compared to similar periods in 2022 and 2023.”
ACSI will once again be on the lookout for remuneration reports that don’t satisfy investor expectations. “A number of companies got strong messages last year from investors, so we’ll be looking to see whether they’ve responded to investor feedback,” says Davidson. “We can’t really anticipate what will happen until we see the actual remuneration reports, but we’ll certainly be examining them very closely.”
Evolution of ESG reporting
Whatever the format, the focus on ESG is likely to intensify. “The big change coming down the pipeline is, of course, mandatory climate reporting,” says Davidson. “If you look back over the past decade, there’s been a significant increase in both the quantity and quality of ESG-related reporting. Once upon a time, companies would simply point to their narrative about philanthropic endeavours. Now we’re seeing genuine work being done to identify the ESG risks that are material to the organisation and to report on how these risks are being managed in a way meaningful to investors.”
Recently launched reporting frameworks, such as those from the International Sustainability Standards Board and the Australian Sustainability Reporting Standards (ASRS) support company reporting initiatives. Michael Salvatico GAICD, senior MD, sustainability officer and APAC head of Sustainability Solutions at Sodali & Co, also sees global best practice in sustainability improvements driving the depth of the detail being reported.
“Mandatory reporting will have a direct impact on many companies over the next few years, so they should not only be talking about it at their AGM, they should be acting on it,” he says.
Reporting Scope 3 emissions may expand the pool of companies being captured, either as part of a reporting entities’ supply chain or loan book. These companies may benefit from calculating their own Scope 1 and Scope 2 emissions. Even if you’re familiar with climate-related disclosures, you may still be impacted by the shortened preparation timeframe and detail required.
Salvatico believes the board and management must ensure they stay aligned. “The ASRS calls for governance and strategy disclosures, which require the board to be involved, and for risk management and metrics, which are highly dependent on management,” he says. “Mandatory reporting will invoke the compliance function of boards, but boards should also see sustainability through the performance function lens. They should be aware that stakeholder expectations can extend beyond climate strategy to a broader set of sustainability issues.”
ESG is another of ASA’s focus governance issues for the year. “Similar to last year, this is around making sure there are the right tangible metrics in place, they’re measured year-on-year and there’s no greenwashing,” says Waterhouse. “The legislation will bring the benefit of consistency to how large organisations approach this and how they report, and we really welcome that.”
AICD view on AGMs
The AICD submission to the Statutory Review of the Meetings and Documents noted NFP entities commonly hold hybrid AGMs, with AICD members reporting positive experiences due to increased participation, especially when members are geographically dispersed. Unlike ASX-listed companies, NFPs tend to use more affordable teleconferencing platforms, making hybrid meetings less costly. The relevant legislation must be broadly applicable, not just focused on large ASX-listed companies, to avoid undue compliance burdens on NFPs.
Few ASX-listed companies hold fully virtual meetings. Feedback suggests many companies would prefer this format, but face barriers, such as the requirement that a company’s constitution must explicitly allow for them. Without such permission, companies must seek a special resolution to amend their constitution. Proxy advisers and institutional investors can oppose such amendments, voting them down.
The AICD believes the current amendments don’t provide the intended flexibility and urges the review panel to recommend removing the requirement for a company’s constitution to expressly permit virtual-only meetings. If shareholder approval is still required, we suggest shifting to an ordinary resolution, with a sunset clause allowing reversion to physical meetings if the virtual format does not meet members’ needs.
A director’s insights
Giselle Collins GAICD sits on four ASX-listed boards as chair of Pacific Smiles and Hotel Property Investments and a non-executive director of Generation Development Group and Cooper Energy.
1. Choosing the format
The right format for an AGM needs to be considered on a case-by-case basis. If, for instance, Qantas had limited itself to an online AGM last year, there would have been a huge backlash. On the other hand, if a company is doing well and investors are happy, it’s unlikely they’ll need to attend an in- person event. In that case, a virtual meeting would be a good alternative.
2. Hybrid meetings
A hybrid format can offer the best of both worlds. We like to offer people an opportunity to meet with the board and management, especially after the formalities of the AGM. Major shareholders have often had one-on-one investor meetings arranged soon after results are released. In these meetings they can communicate with management about their view on performance and strategy and, importantly, understand from the people driving the business how it is being run. The AGM can also be more amenable to interaction with retail investors, who value having this same opportunity.
3. Virtual interactions
Frankly, virtual interactions can be less than ideal. It can be hard to get the nuance of a question when it’s coming in through the chat box whereas, in person, you can confirm you’ve understood what the shareholder wants to know or ask them to clarify. It can also be easier for some people to ask hostile questions when they’re hiding behind a screen. But these downsides should be weighed up against the convenience and lower cost for the shareholders in not having to be physically present.
4. Costs to consider
A hybrid can also reduce costs associated with travel and accommodation for the organisation as it lowers the meeting’s carbon footprint. However, the cost of paying for a venue plus videoconferencing tools, secure platforms and technical support can be onerous, particularly for smaller organisations. These are all things boards need to consider in making their decision, but at least they now have the option of a virtual component, once they have ensured their constitution allows this.
5. Looking to the future
I don’t expect to see virtual AGMs taking over completely. I worked at NRMA and we’d regularly have 1000 people at our meetings. No doubt, that’s partly because it’s a member-based organisation and for some members, it was an important calendar event that made them feel part of a club. It’s horses for courses, so let’s keep thinking about what shareholders want and how that fits in with the company’s considerations.
This article first appeared under the headline 'Making Both Ends Meet’ in the November 2024 issue of Company Director magazine.
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