Making virtual AGMs click

Shareholder meetings provide a platform for direct participation by investors in the affairs of the company, and hold the directors to account through voting, Q&A and discussion. While some AGMs (annual general meetings), such as those of Berkshire Hathaway and Reliance Industries, are vibrant and well-attended, most of the others are poorly attended formulaic affairs, with slick corporate videos, numerous presentations and Q&A sessions.

The reasons why AGMs are ineffective are not hard to fathom. Small shareholders are unlikely to have a meaningful impact on share prices or voting outcomes, and rationally stay away from a monitoring role. Since large shareholders tend to influence the board in a private setting, and most of the votes are cast prior to the meeting, AGMs are not a forum where meaningful discussions or outcomes are expected.

This increases the apathy levels of both companies and small shareholders (high absenteeism and low levels of voting). For instance, according to OECD (2018) calculations, public non-institutional (predominantly retail) shareholding across all Indian listed companies was 44 per cent on average and 16 per cent when aggregated by market value — the disparity reflecting a significantly higher shareholding in small companies. But this category of investors cast only 18 per cent of their votes in resolutions tallied between January 2020 and May 2021.

Scheduling of AGMs

Some companies resort to practices such as clustering (scheduling AGMs on popular dates), or convene physical AGMs away from headquarters, to dissuade attendance and engagement.

Covid-19 has changed the AGM landscape. There has been a surge in new investor registrations — demat accounts opened in the last two years account for over one-third of all accounts — and there is an opportunity for the regulators and industry to inculcate a sense of ownership and voting habits.

Secondly, virtual AGM, allowed in response to Covid-, has had a mixed impact on engagement. It has opened up avenues for new classes of investors — foreign and out-of-city domestic investors who could otherwise not have been able to attend; however, there are concerns that companies have found it easier to avoid difficult questions.

At this juncture, it is pertinent to ask why companies should care about retail shareholders. In addition to the usual arguments about shareholder democracy, conducting shareholder meetings is one of the most visible ways companies can demonstrate their corporate governance credentials.

To get a sense of the level of engagement at AGMs, the transcripts of AGM proceedings of Nifty 50 companies in 2020 were analysed. Based on available data, Nifty 50 companies had between two and 30 shareholders (speakers) asking questions.

Almost all companies required pre-registration of speakers, and the default approach is to allow speakers to ask questions in turn, and have one person summarise the responses in the end. While this may reduce duplication and is convenient for companies, it increases the chances of difficult questions being ignored. The best companies fielded several executives to respond to questions — even those raised in chatboxes — and were more interactive.

How can companies conduct virtual AGMs more effectively? This can be done by replicating the in-person experience as closely as possible. For this, companies should not have rigid schedules of an hour or even less, and must focus on maximising engagement. Lessons from online conferences suggest that virtual networking options around the event, both among members and between members and the board, increases opportunities for informal conversations typically seen in physical AGMs.

Also, companies must allow some time for impromptu questions in response to company presentations, instead of limiting the questions to pre-registered speakers, or questions submitted in advance.

How should shareholders approach AGMs? While shareholders need to prioritise which meetings to attend based on their holdings or other factors, attending AGMs and listening to the management will complement the investment process and identify potential red flags.

The value of engagement is high during times of crisis. Companies and investors have experienced one round of virtual AGMs and had a chance to figure out what works best. It is important to build on the experience and make progress in terms of quality of engagement.

The writer is, Director, Capital Markets Policy, at CFA Institute

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