Pandemic-led shift to virtual AGMs pushes participation rates up but approval rates down

The disruption caused by Covid-19 has seen companies move to virtual-only and hybrid AGMs. Though initially sparking fears that shareholder rights would be diluted, the success of the move may lead to a profound change in the nature of shareholder engagement. Participation levels over the pandemic period have in fact increased, according to new research from D.F. King, Orient Capital’s specialist proxy solicitation and transaction support team.

FTSE 100 companies saw AGM participation levels increase in 2020, up by over 1.5% to almost 76% of issued share capital on average, compared to 74.3% in both 2018 and 2019. AGM proposals also continued to pass with high levels of shareholder support, averaging at 96.75%. 

Major themes including board composition, financial capital, renumeration and ESG remain high on investors’ agendas, as they grow increasingly demanding about their expectations of what needs to be achieved to receive their support. 

Board composition turned out to have been one of the most heavily scrutinised topics during this year’s AGMs, with Covid-19 prompting investors to further challenge corporate governance principles. As companies are forced to navigate unchartered waters caused by the pandemic, greater reassurance has been sought from the floor that ‘over-boarding’ issues will be addressed and that those directors not demonstrably available and committed during the pandemic be reassessed and potentially not re-elected.

With investors keen to ensure directors were fully available, dedicated, and competent enough to tackle the crisis, those FTSE 100 companies that received under 80% approval rates for one of their proposed director re-elections did so as a result of over-boarding and commitment concerns. 

Overall, average approval rates for UK director re-elections have decreased year-on-year, from 98.2% in 2019 to 97.51%. As almost one out of every two items proposed by issuers was a director re-election, this has had a knock-on effect and reduced the average approval rate of FTSE 100 resolutions by almost 1%, now standing at 96.75%. 

Alison Owers, CEO, Orient Capital and Director at D.F. King, comments: “Covid-19 has demonstrably accelerated the rise of the virtual AGM, as the social restrictions imposed by the pandemic has forced many companies to embrace a virtual-only model. Despite some doubts, proper governance and shareholder access has been maintained and it also resulted in greater levels of engagement in the UK this year.

“There remains a significant amount of uncertainty as to the economic outlook for the next 12 months and companies will need to be focused on the continued themes the pandemic has brought into focus more clearly, such as adopting ESG into the heart of the governance framework.  Yet one thing that is certain in a year like no other is that the adoption of a more digital AGM should become a staple for UK companies long after the pandemic is a distant memory.”