Update on the 2024 AGM Season

With the 2024 AGM season now in ‘full swing’, we reflect on key stakeholder trends, areas of focus on climate and ESG more broadly and approaches to meeting format and practices – covering the ‘focus’, ‘format’ and ‘future’ for AGMs. Timothy Stutt, Partner, Australian lead ESG at Herbert Smith Freehills and Suzannah Hewson, solicitor outline the main trends.

Focus

Activist strategies on climate and beyond

ESG-related activism has continued at AGMs in 2024, with a focus on climate strategies and related disclosures. There have been fewer  physical disruptions during the AGMs (so far), instead with a return to use of requisitioned resolutions and, in line with the past two years, members’ statements. These activist techniques are often used by ESG-focused NGO groups to pressure companies to disclose more information and/or to justify a strategic position or direction on sustainability matters.

Live examples being considered over the next month include resolutions on climate change – with scrutiny of alleged ‘Paris-aligned’ transition plans, a perceived lack of transparency and rigour in plans to manage emissions associated with new projects or assets, as well as resolutions on the impacts of company practices on the surrounding natural environment and endangered species.

Compared to requisitioned resolutions, members’ statements are an appealing advocacy method for activists as they provide comment on existing items of business and avoid the need for a vote in favour of a constitutional amendment resolution. This year, there were several notable members’ statements focused on similar climate-related topics, including a perceived lack of effective climate governance, feasibility of emissions reduction targets and alignment between growth and climate mitigation/adaptation strategies. However, the momentum of this approach may be short-lived with the new mandatory climate reporting regime, effective 1 January, requiring enhanced disclosure of board competencies in relation to climate, as well as linkages between climate and remuneration structures.

Some members’ statements this year also raised broader issues such as the generation of shareholder value, company performance and remuneration frameworks and some companies have faced the nomination of external candidates for election as directors. Although external candidates are generally unsuccessful, this tactic can press companies to reflect on the rigour of their board skills assessments and provide a ‘platform’ for the candidate to advance their argument for changes to the companies’ strategy (whether in relation to financial or ESG matters).  

Questions

In comparison to the 2023 season, there has been a notable reduction in questions related to climate and ESG so far. However, of the questions being asked, a significant proportion still do relate to climate and nature matters. Notably, during the 2024 AGM season, there has been  a comparative lack of ‘Say on Climate’ votes. Only companies with existing Climate Transition Action Plans have put forward revised versions for an advisory vote, and it is predicted that generally only companies which put plans to a vote in 2022 are likely to do so in 2025. (Even then, the form and frequency of future climate-related disclosures remains somewhat unsettled given the introduction of the climate-related reporting regime and the requirement for statutory sustainability reports to be tabled at the AGM going forward).

Beyond climate and ESG, the three topics that have attracted consistent stakeholder focus this year are:

• Remuneration and financial performance – Shareholders and proxy advisors are scrutinising the terms and outcomes of incentives, especially where board discretion has been relied upon or where the favourable treatment of executives does not align with overall company performance. This focus has resulted in several companies receiving ‘first strikes’ on their Remuneration Report (and others narrowly missing a second), with ‘against’ votes commonly attributed to the testing and determination STI/LTI outcomes and the transparency of related disclosures; the suitability of any peer group benchmarking; or any discretionary bonuses or retention payments paid to executives.
  
• Director ‘overboarding’ – The stakeholder expectation that directors act with care and diligence is not new (and is enshrined in law), but there has been a consistent focus this AGM season on the potential ‘overboarding’ of certain directors who sit across several boards and perceived constraints this has on their commitment to a particular company. Certain directors have conceded they are looking to redress their workload; while others have reiterated they are confident they are dedicating the time needed to fulfil duties. It is undeniable that ‘hands-on’ board governance is a focal point for stakeholders; with several Australian companies facing scrutiny where this is perceived to not have been delivered.
• Board skills – It might be due to the focus on board skills in Australia’s climate-related reporting regime, or investor disquiet over current practices, or a combination of the two, but it is clear that stakeholders are focused on board competence and board skills matrices (and consequently, the proactive rectification of any perceived ‘gaps’). For example, Australian Shareholders’ Association (ASA) representatives have asked companies to either identify strengths of individual directors, clarify how board skills matrices were developed (including whether they were subject to independent review) or to explain how board succession planning will address weaknesses in board skills matrices.

Format

There has continued to be a mix of both hybrid meetings and physical meetings in 2024 (and a few virtual-only meetings for good measure).

The logistics, costs and potential for technical issues affecting the smooth operation of the meeting remain common reasons offered in opposition to hybrid meetings. However, the inclusivity and flexibility of participation continues to appeal to shareholders and proxy advisors. Key proxy advisor 2024 voting guidelines express support of hybrid meetings. Notable AGM critic Stephen Mayne has continued to celebrate companies for conducting hybrid meetings and has asked boards to commit to continuing with the format in future years. Notably, some companies are choosing to hold physical meetings, with the option for live online questions as a ‘middle ground’. While this approach still replicates many of the logistical (and cost) complexities of a hybrid meeting, it does have the benefit that only shareholders attending the meeting physically are counted as attendees (and accordingly failure of technology is less likely to impact on the validity of the meeting or require adjournment or postponement).

The format of AGMs will continue to be a ‘hot topic’ as the Australian Government has recently tabled a report on the Statutory Review of Meetings and Documents Amendments, conducted by a panel comprising Robert Austin AM, Helen Bird and Judith Fox MAICD. The report is the outcome of a review of amendments that were made to the Corporations Act to allow companies to:

• hold hybrid meetings, or wholly virtual meetings where permitted by the constitution;
• communicate meeting related documents electronically; and
• electronically sign and execute company documents.

Generally, the panel recommended that these provisions should not be changed. Among other recommendations, they chose to uphold the current scope for listed companies to hold virtual meetings (i.e. subject to permission in their constitution), but recommended a change to allow non-listed companies to hold virtual meetings without a constitutional amendment. Importantly, the panel did not recommend removing the requirement for companies to provide a facility for verbal questions at hybrid and virtual meetings. The Government is now considering the Panel’s report and will publish its response to the recommendations.

Future

As soon as this 2024 AGM season wraps up, we will be entering the next and after a retrospective overview of the focus and format, it is time for our rapid-fire predictions of what the next few AGM seasons could bring:

• Focus – Climate and sustainability activist strategies are expected to evolve (rather than evaporate) as companies’ actions and disclosures gain sophistication and momentum. We expect to see the focus on broader nature-related matters increase; as well as the focus on how companies’ capital allocation and growth plans intersect with climate. This could lead to votes against directors who fail to adequately oversee climate risk; or external candidates being proposed for their climate-related skillset. Another area to watch is cultural diversity, which has become an emerging stakeholder focus and area of regulation overseas, both in terms of board and employee composition.
• Format – We anticipate that the near-term format deliberations for most Australian companies will be between a physical and hybrid AGM (as many companies will be unable to hold a virtual meeting without express permission in their constitutions). Shareholders, and especially retail shareholders, are expected to continue to prefer hybrid meetings, but the extra logistics and costs on companies will see some companies retain (or move to) physical meetings instead. In the longer-term, the more fundamental question is whether AGMs are continuing to serve the interests of stakeholders or whether other, more informal engagement options (e.g. periodic ‘town halls’; investor briefings) would be preferred by both companies and stakeholders alike.

Timothy Stutt (Partner and Australian lead, ESG) and Suzannah Hewson (Solicitor) are corporate lawyers at Herbert Smith Freehills. They specialise in governance and ESG matters, including board advice, market disclosure and stakeholder engagement.