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ESG – News


TRANSPARENCY IN FOCUS AT UPCOMING AGM SEASON


Shareholder participation will be a challenge in this year’s AGM season amid ongoing social distancing rules, but could collaboration ensure that their voices are heard. Mona Dohle reports.


The upcoming AGM season is gearing up to be hotly contested, with the Covid pandemic adding to other social challenges, such as climate change, gender equality and ethnic diversity. UK plc is bracing itself for another socially distanced AGM sea- son, which could provide an obstacle to shareholder participation. Last year, two thirds of FTSE100 firms excluded shareholders from their meetings due to the Covid pandemic, which resulted in most decisions being made behind closed doors. Barclays, HSBC and BAE Systems, which in the past had strong levels of shareholder engagement, opted to hold their meetings behind closed doors, a move which has sparked crit- icism from campaign groups such as ShareAction. The lack of access to virtual AGMs has raised a spotlight on antiquated listings rules. Based on the 2006 Companies Act, which requires companies to state a meeting place, many com- panies opted last year to halt shareholder participation. But regulators had a year to catch up and have taken steps to improve shareholder rights. AGM rules for UK-listed firms are now covered by the Corporate Insolvency & Governance Act 2020, which explicitly permits virtual meetings but is only valid until the end of March, thereby excluding most AGMs. After that, the format of the meeting will depend on the social distancing restrictions that are in place at the time.


Hybrid meetings take off Most listed firms have so far held off from confirming the set- ting for their AGM. But with most meetings due to be held in April and May, they are leaving it late to announce if they are holding it in person or not. The Financial Reporting Council (FRC) picked up on this issue in October, having issued a Corporate Governance AGM Guid- ance, which advocates the increased use of virtual or hybrid meetings. ICSA: The Chartered Governance Institute has also updated its guidance, which not only permits hybrid AGMs but also states that closed-door AGMs will no longer be lawful from April, which means companies can no longer prevent shareholders from attending.


Of the firms that have disclosed their AGM notices, there seems to be an overwhelming trend towards a hybrid format, which allows some form of participation.


24 | portfolio institutional | April 2021 | issue 102


And there will be plenty to talk about. Even before the AGM season officially kicks off, many institutional investors have teamed up to make their voice heard on some controversial issues.


Climate change – preventative action This includes campaigns around climate change and pressur- ing firms to become carbon neutral. HSBC announced plans to stop funding coal by 2040 ahead of this year’s AGM, having faced a concerted lobbying effort from a coalition of institu- tional investors manging $2.4trn (£1.7trn) in assets, including Brunel Pensions Partnership, Friends Provident Foundation and Denmark’s AkademikerPension. With the bank having conceded to tighter rules on carbon financing, investors have agreed to drop their shareholder res- olutions and back the bank’s revised proposals.


Diversity challenge Another topic that has moved up investors’ agendas is diversity, which now includes increased attention to ethnic representa- tion at board level. The 2016 government commissioned Hampton-Alexander Review on gender equality, proposed that by the end of 2020 women should account for at least a third of FTSE350 directorships and FTSE100 executive committee members, a target which has, on average, been achieved, although 16 firms failed to comply. But the Parker Review proposes that FTSE100 members should have at least one director of colour by the end of this year, a tar- get which almost 40% of firms are likely to miss. The lack of ethnic diversity is even more poignant for FTSE250 firms, with around 70% having all white boards. Institutional shareholder services such as ISS and Glass Lewis recommend voting against chair nominations which fail to meet the Hampton-Al- exander and Parker Review criteria.


Pandemic pay cut The pandemic’s impact on the global economy has added addi- tional heat to the question of pay, making it less likely that investors will approve bonuses for executives. The Investment Association published a guidance on remuneration in Novem- ber, which suggested, among others, that companies which have received government support from, for example, the fur- lough scheme, should not be awarding their executive direc- tors annual bonuses and that salary increases and pension pay- ments should be in line with awards to the broader workforce. Overall, while the immediate hit of the Covid pandemic might have offered UK-listed firms an easy way out in 2020, they may now have to brace themselves for increased pressure from shareholders, ahead of the meetings and through virtual engagement.


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