Coronavirus: Governance group Proxinvest slams ‘joke’ virtual AGM

And German issuers want law changed to allow AGMs without shareholders

A virtual annual general meeting held amid the coronavirus pandemic has been slammed as a “joke” by the CEO of French proxy advisory firm Proxinvest.

Loïc Dessaint was referring to the virtual AGM of Elior Group, the French listed catering company that was until recently a contractor of the UK Ministry of Defence.

Dessaint told RI that the AGM, held just this morning, was nothing more than an audio webcast with some slides shown by three executives (the CEO, the CFO and the head of legal affairs). The lack of a Q&A session was another shortcoming.

Dessaint said: “Not only was it a joke but neither was it in line with the articles of association of the company, which do not authorise this type of fully-virtual meeting, nor was it in line with French law.”

According to Dessaint, not very many AGMs have so far been postponed in France, despite a new rule by the French government being expected this Monday.

"Boards and management seem to be acting urgently to try to avoid being accountable to shareholders."

Proxinvest has advised the government to extend the AGM season, for three months, until the end of September rather than the end of June.

For example, Bureau Veritas has pushed back its AGM to June. Likewise, Proxinvest has recommended that French companies do likewise, rather than holding virtual meetings which can compromise shareholders’ rights.

“It’s hard to understand why companies prefer to hold general meetings without shareholders rather than postponing them to June. Boards and management seem to be acting urgently to try to avoid being accountable to shareholders.”

Dessaint added that postponing AGMs is also advisable to establish a more responsible dividend policy.

“Shareholders will have to wait longer for the payment, but it would provide boards more time to think twice about their distribution policy given the new context: COVID-19, plant closures, the new oil market, short-term cash needs, etc.”

Meanwhile in Germany, the national association of issuers, Deutsche Aktieninstitut, has urged the government to reform company law and let companies carry on with their AGMs.

The German Stock Corporation Act requires shareholders to be in attendance and virtual-only AGMs are not allowed.

In a position paper, Deutsche Aktieninstitut (DAI) argued that important decisions for the viability of companies are taken at AGMs, and thus, they should go ahead – even at the expense of shareholder rights (such as questioning the board and the right to address fellow shareholders).

DAI’s appeal comes as German flag-carrier Lufthansa has announced it will suspend dividend payments.

In Germany, dividends are usually paid in full once a year, with no quarterly dividend payments like in other jurisdictions.

Jella Benner-Heinacher, Chief Managing Director at shareholder group DSW [Deutsche Schutzvereinigung für Wertpapierbesitz], which represents 30,000 private investors, told RI that the problem with DAI’s proposition is that most German corporations do not include this possibility in their articles of association.

They could only do so, if they change their articles in this year’s AGMs, she said.

Benner-Heinacher said that DSW supports a possible exception to this requirement in the articles for this season because of the current exceptional circumstances.

“But even in a purely digital meeting shareholder rights should be ensured to the same degree as in a physical meeting. Otherwise important shareholder rights such as the right to ask questions and, in the case of insufficient answers, the right to go to court should not be restricted in any way.”

Tommy Piemonte, Head of Sustainable Investment Research at Bank für Kirche und Caritas, told RI that companies should work on giving shareholders the opportunity to exercise their shareholder rights digitally.

“I am sure that there is a way to do this. Otherwise, companies should consider postponing the general meeting until the latest possible date this year, unless there are recommendations to the contrary from the health authorities.”

Markus Dufner, Managing Director of the Critical Shareholders body in Germany, told RI that while the current situation is challenging for companies, it must not lead to over-hasty reactions and fundamental changes in the law.

"The discussion with company managers is an indispensable part of an annual general meeting. The right to speak allows shareholders to point out undesirable developments in the company and to obtain important information with their questions.

“The shareholders, the company and ultimately civil society benefit from this gain in knowledge.”

Barbara Happe, Board Member of the Critical Shareholders Board and Finance Campaigner at campaign group Urgewald, said: "Special regulations for the 2020 annual general meeting season are certainly necessary. However, the shareholder rights guaranteed in Section 118 of the German Stock Corporation Act may not be infringed.

“Without a comprehensive discussion, no well-founded decision on the discharge of the Management Board and Supervisory Board can be made." Under German company law shareholders ‘discharge’ management.

German asset manager DWS, a major shareholder at Lufthansa, was not immediately available for comment.

In Italy, ground zero for Covid-19 in Europe, just a few AGMs have been postponed. According to Sergio Carbonara, founder of Frontis Governance, banking giant UniCredit has confirmed its AGM on April 9.

Carbonara said: “As far as I know, as of today only five out of the largest 100 Italian companies have postponed the meeting, while almost all others will allow shareholders to grant the proxy for free to an independent proxy agent appointed by the company (the so-called “company-designated proxy holder”).

“All the shareholders have the right to submit questions before the AGM, and the Board must make publicly available all the answers.”