Episode 21 - The evolution of AGMs

RJ

Today I'm speaking to Peter Fowler, Managing Director at Lumi UK, about the 2023 AGM season. It's great to be speaking to you today, Peter. To start us off, have you noticed any trends emerging from this year's AGM season?

PF

It's great to be joining again. I think the trends this year have been very interesting. I think it's been very influenced by the cost of living crisis. I think no doubt some of the rising inflation and probably the uncertainty around some geopolitical landscaping, that's very much dominated it. I think we've seen activism from both shareholder groups and outside bodies; I think it's been quite rife. I think in the UK there's been some big organisations that have experienced some disruptions to their shareholder meetings. That's probably the general consensus: cost of living, rising inflation, geopolitical and then, as always, some of those disruptions that we've seen [before].

RJ

How much of an impact do you think the Covid-19 pandemic has had on AGMs worldwide?

PF

It's been significant. I take some examples from our solution that's used around the world. Probably prior to the pandemic we were doing about 90 or so virtual hybrid meetings. That went to 4,500 overnight. So that was incredible from a meeting format point of view. The change from a traditional physical-only meeting went very quickly to virtual.

But I think we knew that wasn't going to be the case across the globe. We knew that virtual wasn't going to be the format that was going to continue post the pandemic. And that has been the case. I think there's been some markets around the world where legislation changed to enable virtual and virtual is the predominant meeting format, because that works in that particular market.

Somewhere like Norway, for example, the USA, there's reasons why virtual works well there.

In the UK legislation doesn't allow for virtual [meetings]. Nor do I think the shareholders themselves and the shareholder base really want virtual. I think there's a big calling for hybrid. There's a big calling for enabling anybody to join around the world, no matter what time of day. It's very hard to get to a meeting in London at 11am on a Wednesday, unless you're a particular demographic. I think this opening up and this ability for any investor, wherever they may be, to join a meeting, I think is important.

However, the balance is [also] important. I think [having] the opportunity to attend a physical location [and] to speak is probably the predominant feeling across the shareholder groups [meaning] that hybrid is very much the format that they want.

RJ

That's interesting. You mentioned a little bit about activism, what are some of the important themes that do dominate AGMs year in, year out?

PF

From a theme point of view, I think, as always, we're seeing things around executive pay, board composition. There's no doubt they are always hot topics, and they always will be hot topics.

But there's no doubt [when it comes to] shareholder activism [that] the root cause of that [activism] is around climate change and matters surrounding that. That’s what's really driving some of these disruptions within these meetings and influencing the disruptions. The normal topics themselves still continue to exist, but [discussion of] climate change is probably something that we're seeing much more of, which is making the management of the meeting a little bit more challenging.

I think you've got to be ready for those circumstances if they were to occur. But I think what I've seen over the last few years is that companies are much more prepared for this. They're really thinking, and they're planning around the potential disruptions and have contingencies in place, and that's vital.

RJ

Climate change is one of those long-term trends. It makes you think about what the future of the AGM will be, what do you think that will look like?

PF

That's such an interesting question. I think, even prior to the pandemic, this conversation was starting [asking] have we lost the true meaning of an AGM (annual general meeting)? I've been to many [AGMs] over 18 years or so and the business of the meeting [can be] somewhat distracted by other elements surrounding some of the retail shareholders and some of the questions that they have that are just not relevant to the business the meeting. I think there was a drive to try and realign this.

I do think Covid had an impact on that. Because I think what we saw was shareholders that had meaningful business-related questions attending the virtual format in that moment where we had virtual meetings. We did see attendance drop slightly. Rather than dwelling on that fact – I think I want a better phrase for this – I think the quality of the shareholder that was attending the meeting [improved], [shareholders] who had much more business-related questions were at that meeting. I think that trend has continued because we have seen the physical meeting attendance drop. But as I say, true business matters are starting to be spoken about.

The premise of the AGM is [that] it's a vital aspect of corporate governance. It allows shareholders to engage with company management, to vote, and to stay informed about the company's performance. I think that's what we really need to focus on. I think technology that enables investors to join wherever they may be is really driving that focus. Probably what we are seeing is [that] a lot more engagement is occurring with shareholders across the year, not just at the AGM.

RJ

That sounds like a positive trend as well. You talked about hybrid being here to stay and you've talked a little bit about how the format of AGMs has changed. It might be interesting to talk a little bit more about how you’ve seen AGM formats changing over the last few years.

PF

Because of the pandemic we went fully virtual. But I think what that really prompted was issuers and organisations to really learn very quickly around, one, the broadcasting side of things. Because it was virtual we had to set up for full broadcast facilities: the opportunity to webcast and stream the meeting live and pair that with the business of meeting. I think that was a quick learning curve for a lot of organisations. Probably, in that very quick moment, it was an audio broadcast only, where the company could be heard but maybe not seen.

I think, as we've developed and as this has progressed, there's an expectation now from stakeholders that the board can be seen. [That] you can see the entire meeting room and entire set up. You can see the presentations very well as they progress. There's a strong expectation, but I think that was coming, and that was already happening.

Initially, yes, virtual predominantly was the meeting format; it had to be for obvious reasons. But what we are seeing now is, if we look at our global meeting composition of around 2,000 meetings, this is our first half of the year. We did around 2,000 meetings and we saw around 44 per cent of those meetings were fully virtual in the markets, as I suggested, the USA, Norway, where legislation has changed. Then hybrid is 34 per cent; that's a big increase over the years. Hybrid, that meeting format of 34 per cent is very strong.

If we're focusing on the UK, every single organisation that has offered a digital pairing to their meeting is by default hybrid. The vast majority of the FTSE 100 are buying into hybrid, are using it well, and we're also seeing attendance starting to grow around that format. Shareholders are really understanding the technology, they know how to join the meeting and participate. The feedback from shareholders and issuers is very positive.

RJ

Oh, that sounds great. In your opinion, what's the most effective format for an AGM?

PF

I'm going to say hybrid; I have to. But I think that's an overwhelming thing; it's not just coming from me. Obviously, I have a biased opinion being a technology provider and providing this kind of solution. I think that the format historically, prior pandemic, the physical [format]; it was so restricting. As I said, who could attend a meeting at 11am on a Wednesday in a central London location, or even a remote location? It's very, very difficult. Hybrid really provides the best of both worlds. It provides [for] that traditional shareholder who wants to physically attend a meeting for whatever reason they may want to, that still remains, and that still remains important. But this opportunity to allow any shareholder wherever they may be to participate and engage, and ask questions, and vote; I think it feels right.

I think, historically, there's been a concern from companies that hybrid is very difficult. It's costly. It's very difficult to manage, there's lots of complexities around that. But I think that's broken now because of everything we went through with running these meetings virtually. Once you do this once – this is a big thing that we really promote – the support you need through the very first hybrid or virtual experience is needed, absolutely. Organisations like ourselves are there to support the company. But once you've done it once, it's a very easy format to replicate and repeat. And it just opens up opportunities around what more you can do surrounding the location, the timing etc of the meeting.

RJ

Which companies have you seen that have embraced the virtual or the hybrid format successfully?

PF

I think I touched on it from a UK point of view; the vast majority of the FTSE 100 [have embraced the virtual or hybrid format successfully]. This is interesting, I think. Organisations like Shell and Barclays and HSBC and Marks & Spencer within the UK; they've adopted it. I absolutely commend organisations like that.

You would think that some of these organisations would shy away from something like this, because you're opening the meeting up to potentially unlimited attendance and engagement for shareholders wherever they may be. [Organisations] like Shell and BP and Barclays, they've got some challenging subjects there to address when it comes to Q&A, but they’re not shying away from these formats; they're absolutely embracing it. It's great corporate governance; it's a great experience for their shareholders. These are the ones that are really adopting it and really driving this forward as the format that is here to stay, and they can see the advantages of that.

RJ

You mentioned earlier shareholders changing in terms of who attends. How do you think modern shareholders differ from traditional shareholders?

PF

It's such a good question. There's actually two pieces to this. I think one challenge in the UK that we face is access to the meeting. There's been a big drive by the likes of Marks & Spencer particularly around this concept of shareholder roadblocks. Because [modern-day] shareholders hold their shares in an underlying nominee broker account, the modern-day shareholder would buy their shares through that kind of platform. So, access to the meeting is really challenging; it's very difficult. It's very cumbersome, you've got to go through a lot to get your credentials to then access and authenticate yourself into the meeting. This is starting to be broken down. The modern-day shareholder is driving that change. I think there are some great advancements from the likes of interactive investor, who are opening up the opportunity for the underlying shareholders to join the meeting and participate.

What's different [about] a modern-day shareholder, I think, [is] their willingness to vote and to be heard. I think they've got strong desires around asking questions, but ultimately, they want to participate, and they want to participate live in these meetings. I think long gone are the days of shareholders turning up and all they're wanting is biscuits and coffee. I think now the true meaning of an AGM is starting to be seen once more, where matters are really being discussed. I think that's the modern-day shareholder influence coming through.

RJ

Okay, interesting. You allude a little bit to the expectations of shareholders changing. So, the modern shareholder, what are their expectations and needs?

PF

I think it's an opportunity to engage. I think when we apply hybrid technology to the meeting format there is an expectation, [while understanding that] you're never going to have exactly the same experience as a physical meeting, but you shouldn't be disenfranchised by joining online. You should have the opportunity to not only write in your questions and for them to be read out verbatim and answered live in the meeting but there should also be an opportunity for you to be heard. There is a potential legal requirement here where shareholders, no matter where they are, should be heard.

I think this concept that not only can you type in your questions but I think this opportunity to speak, to be heard and to have a two-way conversation with the chair, in that moment, I think should be apparent and should be easily accessible. I could go on around the technology and making sure that anybody can join no matter what device they're on, but that's a given; that is here now. Those barriers no longer exist.

I think [there’s a] concept of not being disenfranchised, a feeling that a modern-day shareholder, even though they're joining online, [should] have the same level [of participation] as the physical shareholder who can get to an 11am meeting on a Wednesday. I think it's a balance and it's an expectation that they're going to be heard; their questions are going to be addressed.

RJ

Do you think the AGM, as a standalone event, is enough to engage investors year-round?

PF

I don't think it's enough, no. I think the AGM is a really important moment for the shareholder to do that. But we're seeing an awful lot more events occurring. I think issuers are understanding that engagement all year round is important. Lumi as an organisation, we are now not only supporting AGMs we're also supporting investor relations meetings. No longer do investor relations (IR) meetings just mean quarterlies, or half years or full years. There's an extensive calendar around investor relations meetings no matter what kind of investor you are, whether you're institutional or whether you're retail.

Some of the IR calendars we're seeing, events are happening across the year, in some cases, we're talking 40 plus events around investor relations. I think opportunities exist and organisations are really trying to embrace [those opportunities] and are really trying to engage.

I do think the AGM will always remain a very important retail shareholder moment. But more and more opportunities are being provided. Therefore, I also encourage organisations that aren't [providing additional opportunities] to look to the others that are because the benefits are there to be seen.

RJ

Absolutely. When you're planning an AGM, what are the ‘must dos’ that you should do?

PF

I think we've probably talked about meeting format, a lot. I think deciding the meeting format is key. Understanding your shareholder base, their wants and their needs. Of course, there's a restriction in the UK relating to legislation and maybe that barrier in the future will change. I think from a planning point of view, you've got to pick the venue location, you've got the technology that you want to apply. You want to ensure that whatever technology you are applying and whatever format of broadcasting [you’re using], again, [that] it's engaging; it speaks to your base, your shareholder base, and it ticks those boxes.

From an organisational point of view, I think there's an element of preparing the board. By now, we're probably amazed that the vast majority of board members across the FTSE organisations have probably already done virtual, if not hybrid already. They understand that it is a little different to deal with questions coming in online as well as physically. But I think making sure that board members are very well prepared [is important]. Whether that's in the form of booking rehearsals or things like that to prepare successfully, then that's something to consider.

I think Q&A is the absolute crux of it all, really. It's the most important part of an AGM, not only from a shareholders’ perspective but from a company perspective. Everybody wants that to go very smoothly. I think preparation is key. We work with an awful lot of organisations and the vast majority of these organisations will have board packs and Q&A packs ready to support the board in that moment. But I think, again, technology now has a role here where a lot of that is becoming much more digital. [It’s] much quicker to adapt and to be agile to the different formats [in terms of] how you manage the Q&A experience. There's a lot of successes that we've seen over the past few years. We can provide that kind of guidance and support to new organisations who are starting to use this. Being very well prepared around the Q&A piece [is important].

Lastly, as always, it’s probably [the case] with any event you’ll ever run, preparing for the unexpected. Having contingency plans. It's understanding what to do, if. I think the trend is that a lot of organisations this year have been much more prepared for the unexpected and have dealt with situations that have occurred very well.

RJ

That’s interesting and I wonder if that plays into a growing awareness of those key trends that are influencing AGMs like climate change. I think they also influence the likelihood of activism. How should organisers prepare for shareholder and outside activism?

PF

It's a great question. I think there's probably many answers to this. Probably looking at your peers and organisations that have experienced this before. There's a lot of learning that can take place from situations that have occurred.

I think when you're thinking about physical venues, you're thinking about all the opportunities around how to manage disruption and how quickly can you move past that disruption? From an online participation point of view, ironically, we don't typically see much [activism] occurring online. Traditionally it's happening in a physical location. But I think technology, if it were to occur online, [makes activism] much easier to deal with than it is in a physical meeting. There's the opportunity to, whether it's to turn off the sound of an activist or whether to block them from messaging, those kinds of features exist in a technology format; it's much easier to deal with than maybe ejecting somebody who's in a meeting causing disruption.

I think it's thinking of everything and planning for the unexpected. What are the contingencies that you can look at? Looking at your peers and some of the things that have happened recently is probably the best way to do that.

RJ

We've talked about what the future of AGMs might look like. What tips would you have for anyone planning next year's AGM in 2024? What will the landscape look like then?

PF

I think one of the pieces I would say is when you're running a hybrid meeting promoting or leading with digital first. That's been very successful in some of the organisations that we've worked with recently this year. I think when they are leading with that message, it can somewhat take the heat away from that physical location meeting. I think it also is showing great signs of increasing shareholder engagement and shareholder attendance. I think when composing the notice of meeting, I think that is something to consider, very much promoting the hybrid meeting.

The role of technology and how it can support the format. We’ve touched on the hybrid format and how technology can support it. The extension to some of these things around Q&A, enabling shareholder engagement for those that are online, [asks] what can you apply in that sense to the physical location? By that I mean, an experience I could have as a shareholder is that I attend the physical location; it's a hybrid meeting format, but I'm a physical shareholder who turns up to the meeting. From a Q&A experience, what we're really starting to see is this concept of pre-registering questions. I wouldn't say it's a new concept, but it's increasing in its appetite. As a shareholder, I would go to a question registration desk, I'd say, this is the general theme of my question [and] I'm greeted by a company member of staff. The beauty of that is that [question is] coming back into a central location, where not only are the physical, pre-registered questions [coming in] but the questions coming in online are coming into that space as well. From a meeting control point of view, the team that are supporting the board behind the scenes are then starting to manage the questions; they're starting to manage the themes that are coming in. This is all prior to the start of the AGM. They're starting to provide some helpful suggested answers to the board. If they're technical questions, then I think that's very helpful and supportive. But most of all what that then means is when it comes to the Q&A experience; it’s incredibly controlled, which I think is great. It’s very orderly; that provides comfort to everybody if it's quite controlled and orderly.

But most importantly, as I touched on before, this concept of not disenfranchising one or the other [type of shareholder]. The concept of having questions coming in physically and online, and maybe even verbal questions coming in from remote attendees, gives the opportunity for the chair to then really bounce between the different locations, wherever those shareholders may be. So, we'll take a physical question first – the shareholder still gets to speak and ask the question – and then we'll move to an online written [question], then we'll move to a verbal question, and then we'll carry on. I think that works really well.

What I have seen in the larger meetings where questions really dominate, is that we're starting to see [the company saying] let's pick up on themes. Let's address climate change first, let's address all of the questions that surround that topic. Now let's move on to remuneration, as an example. And then let's move on to board composition. Rather than having this very ad hoc, random Q&A that's bouncing from one subject to the other, it becomes much more structured. I think the experience for all is therefore somewhat greater. I think from a tip point of view, hopefully that's been helpful. [They’re some of the] experiences that I've seen and how meetings have been run very successfully this year.

RJ

Thank you so much for all those tips; they are incredibly useful. And thank you so much for the discussion today. It's been great to speak to you about some of the key emerging trends of the 2023 AGM season and get your insights on how the meeting format is evolving as the expectations of modern shareholders, as we discussed, are changing. Thank you for sharing your advice on planning an AGM in terms of the format it should take, optimising the Q&A session and preparing for activism at the event. It will be, as you say, really interesting to look at how AGMs continue to evolve into the 2024 season and beyond. Thanks again for your time today, Peter; it's been really interesting.

PF

Thank you so much.