EdenTree’s White: The ‘problem’ with the AGM

As I write we are at the height of the UK proxy voting season, with almost daily media reports of actual and potential shareholder revolts over executive remuneration and demonstrations by activists.

At this time of year – roughly from April to July (with a lull in June), investors are typically engulfed by voting decisions – the challenge to be thoughtful and informed weighs heavily against the sheer volume of meetings in the calendar.

As institutional investors we are often asked if we attend AGMs, and we do from time to time, but the real reason the institutions are absent is the sheer volume of meetings, often on a single day. For instance 10 May saw Marshalls, Barclays, ITV, Rentokil, Aviva, BAE Systems and Vesuvius (among others) hold their annual meetings. The following day 19 UK AGMS held.

The ‘problem’ with the AGM has often preoccupied corporate governance thinkers; how to make them more inclusive and useful given institutional investors rarely attend, and how to make the best use of the opportunity in bringing small investors and company management together, one day a year.

AGMs are not the place to learn about strategy, nor do they fulfil the function of analyst briefings and capital market days. The AGM is, in effect, a tangible legacy of Victorian capitalism.

At some of the big set piece annual meetings – BP, Shell, mining companies – the chair will find themselves fielding up to three hours of questions from a range of stakeholders on corporate practice across a multitude of issues. These questions are typically taken under the first resolution required to be voted on – Adoption of the Report and Accounts.

One of the limitations of the AGM is the narrow scope afforded under the Companies Act to deviate from a fixed pattern of statutory business. Although each meeting is different, broadly speaking, every meeting is required to put a fixed number of resolutions to vote: the Report and Accounts; declaring a dividend; election of directors; approving the auditors (and their remuneration); approving remuneration, and finally, a number of technical resolutions around the purchasing, allotting and issuing of shares with or without pre-emption. Companies cannot deviate from these statutory requirements.

One element missing is the opportunity to express a view on the long-term sustainability of the company or its approach towards key corporate responsibility issues, such as climate change. Integrating climate change into voting intentions, for instance, is problematic because there is no obvious statutory route to exercise shareholder views. In only rare exceptions do companies put their corporate responsibility reports to a distinct and separate vote – media giant WPP, being a rare example.

For many companies in high impact sectors, these issues carry significant actual and potential risk; whether it is process safety and performance, supply chain management and modern slavery or climate change. We believe the time has come to give shareholders the opportunity to be able to vote to approve or reject company performance in these areas. We believe this will be an enabling opportunity for business to put its case to shareholders on sustainable business performance.

It will also be a clear means to register dissent in areas of poor practice such as malfeasance, safety or business ethics, and empower the best performing companies to build the case for managing ESG (environment, social and governance) sustainability risk in the face of potential scepticism from some investors.

In our response to the Government’s green paper ‘Corporate Governance Reform’ we argued the case for shareholders to be given the right to a vote on corporate accountability; “Company Law sets down the statutory resolutions required to be put to shareholders on an annual basis. There is currently no scope for shareholders to exercise proxy discretion outside of these areas except by opposing the Report & Accounts. We believe a statutory resolution on corporate accountability would be helpful in endorsing the company’s approach to stakeholder accountability, as well as providing a mechanism for shareholders taking action for instance over climate change risk or other material non-financial risk (e.g. a poor or declining health & safety record). A small handful of companies provide this opportunity for shareholders already including WPP”.

At a time when business and shareholders are under scrutiny to exercise informed stewardship as never before, we firmly believe that a modification of the Companies Act to allow a non-binding resolution on corporate accountability would be a powerful tool for championing better business practice, as well as being the place for thoughtful shareholders to hold companies to account on matters of strategic risk.

Neville White is head of SRI policy and research at EdenTree Investment Management