Hybrid is good

A panel tasked with streamlining the provisions of the Companies Act 2013 has said that companies must be given the permanent option to hold their Annual General Meetings (AGMs) and Extra-Ordinary General Meetings (EGMs) in virtual mode. This is to be welcomed. The government had first allowed companies to conduct their shareholder meetings through video-conferencing or other audio-visual means in April 2020, to get around social-distancing norms. The dispensation has since been extended a couple of times. Given that virtual meetings have real potential to broad-base shareholder participation in corporate decisions, there is a good case to be made for the government to make hybrid shareholder meetings — which allow both physical and online attendance — the default option for public companies. This is particularly relevant now when the retail equity cult in India is just taking off.

Both companies and shareholders have reaped material benefits from meetings in the electronic mode. Companies have been saved the trouble and the expense of organising large physical meetings at marquee venues. Some companies estimate cost savings of 30-40 per cent in the virtual mode compared to the physical. More important, virtual meetings make AGMs and EGMs more accessible to active equity investors with sizeable portfolios, who would otherwise have to criss-cross the country attending physical meetings. Companies that indulge in sharp practices to discourage genuine investors from attending, such as holding AGMs in remote towns or at odd times, bunching up meetings of group firms, planting proxies or distracting attendees with gifts, have limited leeway to do all this in the virtual mode. It is intriguing however, that virtual AGMs have so far not reported significantly higher attendance than physical meetings. This could be because shareholders outside the metros, with connectivity issues may have trouble logging in to attend. With companies insisting on shareholders submitting questions in advance and managements having the leeway to weed out tough ones, the quality of interactions in virtual meetings also often gets restricted. Though guidelines require companies to offer facilities for at least 1,000 shareholders to attend, in practice several companies are placing a 1,000-person limit on attendance, thus restricting access.

All this suggests that hybrid meetings may be the best way forward, with a few tweaks to the processes followed. The government while framing rules on hybrid meetings, should require companies to set aside a specific time window for impromptu questions and do away with limits on the number of shareholders who can attend them. Regulators such as SEBI and IRDA must insist on domestic institutions participating actively in meetings of portfolio companies. For the benefit of investors unable to attend, video recordings of the proceedings must be made available on the company’s website. The copious coffers of investor protection funds can be used to encourage retail investors to participate in company meetings and exercise their franchise.

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