Following a number of corporate collapses the European Commission was tasked with setting minimum standards for shareholder rights at general meetings – specifically with a view to improving corporate governance. The result of this was the Shareholder Rights Directive, implemented in the UK as the Companies (Shareholders’ Rights) Regulations 2009. This amended the provisions of the Companies Act 2006 in relation to shareholder questions at general meetings in respect of traded companies, i.e. companies with shares listed on the main market. AIM companies are not covered, although PLUS market companies are.
Preparing for likely questions
Company secretaries may find it useful to prepare likely questions and suggested answers for the board and circulate these in advance of the meeting. While there are of course topics that are common to every business, each company secretary should tailor their own questions document in light of the relevant industry and the particular issues which have arisen during the year (both within the company and in the market more generally) about which shareholders may be interested in asking for more detail. This list (see boxout) includes a number of current hot topics that will be pertinent to companies’ 2011 AGMs in light of the implementation of the new UK Corporate Governance Code.
The company secretary should ask for input to this document from other departments such as finance and investor relations. The finance department should be consulted if there has been any significant changes in accounting treatment or disclosures in the annual report. The company’ brokers and public relations agency will also be able to provide useful input to this document as they will have a good view of current hot topics and investor sentiment.
When preparing the chairman’s script and guidance notes for the AGM, the company secretary should make the chairman aware of who has the right under the company’s articles to ask questions – i.e. shareholders, corporate representatives and proxies – and ask whether questions will be taken from the press and other non-shareholders. The new provision under the Regulations only applies to questions ‘relating to the business being dealt with at the meeting’. However, as the adoption of the annual report will typically be one of the resolutions at the AGM, and the report covers all aspects of the business, it would be difficult for the chairman to argue that a question is not pertinent.
Many companies include a request for questions to be sent in advance with the circular sent with the AGM notice and proxy voting card, or offer the opportunity to pose a question through their website and obtain an e-mail response. This gives the board a ‘heads-up’ and time to prepare a comprehensive response. BHP Billiton produced a document for its AGM that included all their responses to shareholder questions received before the event. This is an efficient way of heading off duplicate questions.
Dealing with questions on the day
Even with the board properly prepared, unexpected questions are inevitable: the skill of the chairman will then come into focus. An experienced chairman will be able to respond to shareholder questions or field them to the relevant board member.
Meetings where only the chairman answers questions appear rather contrived, with the rest of the board appearing to be ‘spare parts’, hardly a demonstration of the collective responsibility of the board. Questions received on remuneration, director recruitment or re-election or audit issues can be referred to the chairman of the audit, remuneration and nomination committees – this will also help to reinforce the roles of those committees.
In order to manage the AGM efficiently the chairman must be prepared to develop skills in cutting short questions, breaking questions down to make them more manageable and closing the discussion on a particular questionin order to move on to another shareholder.
An AGM rehearsal which includes a role play of the question session is something which the company secretary can organise and which may prove very useful – especially for recently floated companies who are conducting a ‘public’ AGM for the first time, or for less experienced boards.
While the new Regulations may appear to mean that the board cannot wriggle out of answering difficult questions posed at the AGM, section (2)(c) in reality gives the chairman a great deal of discretion as to whether a question will be answered. For instance, it would be not in the interests of the company to answer a question that resulted in a disclosure or release of confidential information which may be commercially sensitive. The board must be careful not to disclose any price sensitive ‘inside’ information not previously made public – under UK Listing Authority rules, such information must be disclosed to all shareholders at the same time.
Under the company’s Articles and in common law, the chairman has considerable power and discretion to run the meeting as he sees appropriate. This includes the discretion to limit the time spent on a particular shareholder’s questions. This ensures that all shareholders get a fair hearing for their topics of interest. The chairman may also use his discretion to limit the total amount of time given over to questions during the meeting.
One tool used to good effect is a clock, visible to all, which limits the amount of time taken to ask a question and also sets an overall deadline in which the question session must be completed.
Don’t forget that the company secretary should be on hand to assist the chairman throughout the meeting on points of order or legal issues – they can also guide him during the question session. Additionally, for very large AGMs where a large number of questions are expected, a ‘back room’ can be set up where representatives of various parts of the company can respond to questions in real time via a link to the chairman’s laptop. This is not necessarily easy to achieve logistically, but it does provide the chairman with reassurance and allows him to draw on significant resources at the meeting.
After the meeting
Companies may decide to publish questions and answers on their website. This will help n regard to future AGMs, as companies may under section (2)(b) of the Regulations) refer questioners to the website if the same question is asked. Marks & Spencer publish shareholder questions on their website.
Shareholders are becoming better informed each year as companies provide greater access to sources of information about their business. To help shareholders, guides to asking questions are published by groups such as the UK Shareholders Association. Company secretaries therefore need to be well prepared for questions from motivated and knowledgeable shareholders. Companies that take the time to plan and adopt a structured
approach to the question session on the day will certainly gain credibility with the shareholder base for dealing with these in an open, professional and efficient manner.
Even without taking into consideration your company’s industry and circumstances, at the very least your list of potential questions for 2011 should cover:
- Re-election of directors
- The impact of the Bribery Act
- Board performance evaluation
- Narrative reporting
- The company’s attitude to environmental issues
- Risk management
- How the company is dealing with the current economic climate
Readers can also refer to the very useful guide produced by KPMG’s Audit Committee Institute for a comprehensive set of questions.
The exact provision relating to shareholder questions that has inserted into the Companies Act 2006 is:
Traded companies: questions at meetings Section 319A
(1) At a general meeting of a traded company, the company must cause to be answered any question relating to the business being dealt with at the meeting put by a member attending the meeting.
(2) No such answer need be given—
(a) if to do so would—
(i) interfere unduly with the preparation for the meeting; or
(ii) involve the disclosure of confidential information;
(b) if the answer has already been given on a website in the form of an answer to a question; or
(c) if it appears to the chairman of the meeting that it is undesirable in the interests of the company or the good order of the meeting that the question be answered.
Madeleine Cordes is Business Development Consultant at Capita Company Secretarial Services. She can be contacted at firstname.lastname@example.org