Australian legislators have introduced a bill that would allow companies to switch permanently to all-online company meetings. But politicians face a battle on their hands against prominent investors, who say the process would cut out the chance to grill executives over company strategy.
I can see both sides of the issue. Just to be on the safe side, it seems wise to me to require companies to continue having a physical meeting (assuming public-health and emergency measures allow) but to incorporate virtual participation. Leaving the decision up to the board only encourages the board to do what suits it best - not investors - particularly when a mismanaged company is coming under activist pressure.
Flight Centre Travel Group (ASX:FLT), Australia's largest homegrown travel agency, voted today to approve exactly such a change. Shareholders voted 80.0% in favor of and 20.0% against a raft of changes to the company constitution, including meetings being held at one or more venues "or using virtual technology only."
Qantas (ASX:QAN) (QUBSF) , the Australian flagship carrier, has on the other hand pulled the same kind of vote, faced with unhappy shareholders. The crate-and-container consolidator Brambles (ASX:BXB) (BMBLF) similarly ditched a vote on the topic, which it had bundled alongside other changes to its constitution, due to reservations from shareholders.
The Australian parliament on Wednesday introduced a draft bill to amend the Corporations Act that would allow companies to conduct hybrid meetings, which combine in-person and online gatherings for shareholders.
But an important clause would allow companies to switch exclusively to online meetings if permitted expressly by the entity's constitution.
Such a clause could be triggered if 75% or more of the company's shares are cast in favor of the change. The Flight Centre vote therefore passed with only 5% clearance to spare, and based on voting by less than half the shares on issue.
Flight Centre Chairman Gary Smith says the company intends to keep physical meetings, and would use the new powers only in a crisis. But shareholder-rights activists say such assertions matter little when they have no legal binding. The pandemic has been used as an excuse or cover by companies and governments the world over to skirt around uncomfortable issues and situations.
The shareholder-advisory company Institutional Shareholder Services said the changes are "not warranted," in the case of the ability to move to all-online meetings, and told shareholders to vote against them.
The Australian Council of Superannuation Investors (ACSI), which represents Australian pension funds, emailed all the companies in the ASX300 index protesting against the move.
"There is a real concern from investors large and small that a move to virtual-only meetings in perpetuity could reduce the transparency and engagement of company meetings," ACSI CEO Louise Davidson says in the organization's statement on the topic.
The Australian Shareholders' Association's CEO, Rachel Waterhouse, also says she is disappointed with the government's move since it limits the ability of investors to participate. The bill "reduces access for retail shareholders and transparency by company boards and management," the association says in response.
The Australian Institute of Company Directors welcomes the changes as a noteworthy modernization of Aussie corporate law. The ability to sign and execute documents electronically is particularly key, the institute states. Remote participation offers the chance to increase "effective and meaningful" shareholder participation at meetings, it believes.
Australia has had one of the harshest lockdowns, closing its borders to non-residents in March 2021, and even preventing its own citizens from traveling abroad or returning home until a recent easing of the policy. Individual states have enacted strict border controls and internal lockdowns that often made state-to-state or even city-to-city travel impossible.
The Australian treasurer, Josh Frydenberg, acted on May 5, 2020, to allow companies to offer online meetings temporarily, as well as to execute documents remotely, due to COVID-19. That permission ended on March 21, 2021, but was extended by another year to March 31, 2022. The new law would go into effect starting April 1, 2022, if it passes.
However, investors favor having the choice whether to take part in person or online. The ACSI says it welcomes a shift to hybrid meetings, so long as they protect shareholder rights. The Australian Shareholders' Association also agrees that it is a "strong supporter" of hybrid meetings, while being opposed to virtual-only AGMs.
The superannuation council says it expects to see improvements in how virtual meetings are conducted so that investors have a "reasonable opportunity to participate," whether verbally or in writing. Some companies have been filtering or censoring questions provided ahead of time in writing, and preventing shareholders from speaking in real time.
The shareholder association will only support online-only meetings "when technology and practice give shareholders a reasonable opportunity to participate - and that is a long way off."
If companies do put the policy to the test with shareholders, the vote must be a stand-alone poll, the association adds, and not bundled up with a range of other changes. Electronic communications should be the default method of communication, it adds, with the ability to "opt in" for physical mailing. But those shareholders should receive the actual documents, it says, not just a postcard telling them to go to a website for further information.
Hybrid AGMs have the clear advantage of allowing investors to participate virtually from wherever they are, without needing to travel in person to a meeting. But the ability to show up in the flesh allows shareholders to "congratulate the directors and the company for good performance," the association says charitably, "or hold them to account for any deficiencies in their oversight." The holding of hybrid meetings is the best of both worlds, it concludes.
The Australian parliament says the proposed law, presented in the Corporations Amendment (Meetings and Documents) Bill 2021, would save an average of A$450 million (US$337 million) per year over the next 10 years in terms of a reduced compliance burden on companies.
The bill, which had its first reading in parliament today, will now go to a committee for public consultation.
If the law does pass, investors should not be bullied into passing changes to the company charter to go all-online. A best-of-both-worlds approach is the way forward.