To ask His Majesty’s Government what assessment they have made of the effect of companies holding their annual general meetings solely online on individual shareholders’ ability to hold directors to account.
My Lords, the Government announced on 20 January that fully virtual annual general meetings would be included in the upcoming consultation on modernising corporate reporting. Officials are engaging with investors and businesses on the practicalities of this. We will ensure that fully virtual meetings take place only where shareholders agree and that any change is accompanied by appropriate shareholder safeguards, co-created with investors and business. A full assessment will be made following the consultation and engagement period.
My Lords, too often directors forget that it is shareholders who own the company. To hold AGMs entirely virtually, barring shareholders’ attendance, is in my view arrogant, unacceptable and sometimes, frankly, cowardly. Institutional shareholders have near-continuous access to boards, but the AGM is normally private shareholders’ only opportunity. It is not just the formal part of the meeting but the opportunity to meet and question directors in the margins of the meeting. Of course, sometimes only a handful of shareholders turn up, and, yes, there is a cost, but we are talking here of the principle of shareholders’ rights. Surely the way forward is hybrid AGMs, with a choice of either virtual or physical attendance.
The Government are not mandating virtual AGMs and there will be nothing to stop companies holding hybrid AGMs. As the people best placed to make decisions about their businesses, we are giving companies and shareholders the legal certainty to undertake fully virtual AGMs if it is right for them. Many investor groups in favour of hybrid AGMs support fully virtual AGMs in extraordinary circumstances. This legal clarity will provide companies the certainty they need in those situations.
My Lords, may I suggest that members of the awkward squad are more readily controlled in virtual meetings, and that is thoroughly undesirable? It is much better to have open general meetings, when members of the awkward squad can speak out.
What we are doing through the consultation on modernising corporate reporting is delivering on our commitment to provide legal clarity on the grey area of whether companies can hold fully virtual AGMs. It would be up to shareholders and businesses to decide whether to take that forward. The proposals that we put forward will be accompanied by appropriate shareholder safeguards.
My Lords, there is nothing in the Companies Act to say that shareholders own companies. They may have controlling rights, but that is not the same as ownership. Besides, shareholders may have short-term interests in companies; therefore, is it somewhat foolish to leave them with the control to direct companies. It is workers and customers who have lifelong interests in companies, and it is time that the Government empowered those stakeholders to promote growth and the welfare of our whole society.
If my noble friend is referring to Section 172 of the Companies Act, which already requires directors to have regard in their decision-making to employee interests and
“the impact of the company’s operations on the community and the environment”,
My Lords, I have been a director, and not a cowardly one, at more than 50 AGMs over the last 30 years. Some AGMs have one attendee or none, some have a few tens, some have hundreds. The costs can often be thousands of pounds per attending shareholder. Given that shareholders can vote and ask questions remotely, should it not be up to the companies to decide—which shareholders can vote on—whether they wish to have in-person AGMs or to do it completely remotely, depending on the companies’ circumstances?
The noble Lord sets out the rationale for why this will form part of the modernising corporate governance consultation. It will be in the hands of the shareholders and the businesses to decide. In fact, 85% of OECD Factbook countries, including the US, Germany and Japan, already allow virtual AGMs. So this is a proposal to bring the UK into line with other comparable countries, and to clarify the legal situation.
The AGM is a more than convenient opportunity for shareholders in this sector to express their views. Of course, they all wish that the awkward squad would stay at home, as we do in this place, but we have to put up with the awkward squad—and my noble friend is very effective at that. The Minister will know that ShareAction provides evidence that online-only meetings allow boards to
“manipulate the agenda, ignore questions and avoid scrutiny”.
Investor groups describe in-person shareholder interactions as the “cornerstone” of the financial system. Even the FRC says that the AGM provides shareholders with the opportunity to see the whites of the directors’ eyes. From my point of view, it would be a great error to discontinue face-to-face meetings. We know it in politics, we know it in charity, and it is the same in business—even if only one person shows up to your board.
We are putting this forward in the modernising corporate reporting consultation to clarify the legal situation for fully virtual AGMs, as I mentioned, to bring the certainty into line with other international jurisdictions. We are engaging with investors on what those shareholder rights and safeguards might look like, so that if shareholders and businesses want to move to fully virtual AGMs, we will know what they might be. Examples could include five-year shareholder votes or best practice or guidance of that kind.
My Lords, if it is the Minister’s prediction that it is left up to shareholders to make the decision, the institutional shareholders will always outvote the individual shareholders. That is why individual shareholders should have their day at an AGM. When I organised AGMs for the three FTSE companies that I worked for, the chairman and I worked very hard on preparing for the questions that the awkward squad would be coming up with at those AGMs. To remove the proximity of the shareholder from the chairman is to lose that important check. Will the Minister go back and make sure that this is a firm part of the consultation?
All noble Lords and the noble Baroness have raised the importance of AGMs. They are incredibly important. They are important for engaging shareholders, large and small, but particularly, as has been mentioned, those who perhaps do not have an institutional voice. We are engaging with investors and the shareholder representative organisations on what the shareholder safeguards should be, so that will be taken into account in the consultation.
My Lords, one of this country’s greatest strengths is our financial services sector and yet many of our firms face unnecessary regulatory and administrative burdens that make it so much harder to focus on their primary duty, which is to shareholders. In the light of the Government’s commitment to cut regulation by 25%, and given those additional pressures that businesses already face from higher employment costs and growing compliance demands, will the Government now set out what specific steps they will take to reduce the regulatory burden on financial services so that this vital and growing sector can deliver better value for shareholders, attracting investment and economic growth?
As the noble Lord mentioned, getting the right regulation and reducing the administrative costs is a priority for the Government and in many areas we have already taken action to do that; for example, we no longer require certain companies to produce a strategic report. We will continue to work through the sectors and across all companies on reducing those administrative costs.