Context: What's being proposed?
On 19 October, Treasury released draft legislation – [exposure draft] Corporations Amendment (Virtual Meetings and Electronic Communications) Bill 2020 and draft explanatory materials – for consultation, proposing to both 'make permanent, and expand upon', the temporary changes to execution and meeting requirements in Corporations (Coronavirus Economic Response) Determination (No. 3) 2020.
Consultation on the proposed changes closes on 30 October.
Broadly, the draft Bill proposes to allow: a) electronic execution of company documents (including deeds) and documents relating to meetings; b) meetings to be held as virtual or hybrid meetings; c) notice of meetings and other documents relating to meetings to be communicated to prospective attendees electronically; and d) minutes to be recorded, kept and stored electronically.
The draft explanatory materials accompanying the draft Bill state that
'The objective of reform is to ensure that companies are able to use the most efficient mix of technologies to deliver on substantive corporate governance outcomes. These reforms will assist companies to more efficiently communicate with their shareholders and facilitate greater transparency between shareholders and directors'.
The draft explanatory materials also note that the temporary changes introduced because of the COVID-19 pandemic have provided an opportunity to test the changes and the government has had feedback that the impact has been positive.
'Companies have embraced the use of electronic means and alternative technologies to hold meetings and execute company document. The use of these technologies has resulted in regulatory savings for industry and increased productivity. There is now an opportunity to permanently modernise the relevant provisions in the Corporations Act in a way that preserves members’ rights to participate'.
You can access our summary of the proposed changes for virtual AGMs and electronic execution of documents.
Is the government jumping the gun?
ISS has raised concerns
In a statement, Institutional Shareholder Services' (ISS') Head of Australia and New Zealand Research Vas Kolesnikoff raised concerns about both the proposed changes to meeting requirements and the shortness of the consultation period which falls during the Australian AGM season.
Mr Kolesnikoff comments that investor support for virtual meetings (as distinct from hybrid meetings) is low (the latest ISS 2020 Annual Policy survey puts it at 11%, except where there is no alternative due to exceptional circumstances) because of the potential for virtual AGMs to diminish shareholder rights. Mr Kolesnikoff comments,
'Virtual-only meetings can serve to limit shareholders’ abilities to engage with corporate officials raise questions, and hinder the transparent expression of views. Examples of such concerns have been seen at some virtual-only AGMs in recent months. Due to the potential for virtual-only shareholder meetings to diminish shareholder rights, particularly without sufficient protection in place we believe it is important for institutional investors with views on this matter to respond to the consultation and make their views known'.
Australian shareholders in one in four companies are already being asked to approve changes to constitutions
Mr Kolesnikoff also raised concerns that shareholders at one in four companies are already being asked to approve constitutional amendments enabling companies to hold virtual AGMs, signalling, he suggests that 'shareholders have not been given adequate time to consider the implications of the virtual meetings in this season'.
The Australian Shareholders' Association has also raised concerns
The Australian Shareholders' Association (ASA) has issued a statement and emailed subscribers, registering concern about the timing of the consultation and the proposed changes.
On the issue of the timing of the consultation the ASA states,
'The Government’s announcement in the Budget to make permanent the temporary relief in relation to online-only or virtual meetings, shareholder communications and electronic signatures, has appeared at the start of an intense six-week trial of the virtual AGM. Australian Shareholders’ Association (ASA) will be submitting comment to the brief two week public consultation on the exposure draft legislation which will be publicly available next week while also representing retail shareholders at over 60 AGMs. The time given to comment is manifestly too short, coming right at the peak of the AGM season'.
The ASA has also urged retail shareholders to register their opposition virtual meetings and to 'demand inclusion of opt-in paper mail communication' by making a submission to their MP and/or by making a submission to the consultation.
ASA Chair Allan Goldin commented,
'ASA has championed hybrid AGMs (a physical meeting with the ability for some shareholders to participate online) since 2017, as well as the ability set a preference or “opt in” to receiving shareholder communications by mail. The AGM is the one chance a year that shareholders, the owners of the company have the opportunity to actually face their Directors, their representatives, and ask the questions they want answers to. A good AGM is an opportunity for healthy discussion and exchange of information and views. The virtual meeting is a sterile format where companies are able to ignore questions, and gloss over details. And similarly, forcing shareholders to receive communications by email. This proposed extension of Virtual meetings and forcing people on to emails is another attempt to deny retail shareholders their voice'.
Wilson Asset Management is calling on shareholders to register their concern about the proposed changes
In an email to subscribers, and in The AFR, Wilson Asset Management Chair Geoff Wilson has confirmed his firm opposition to the proposed changes to meeting requirements on the basis that they will 'further diminish retail shareholders' rights in Australia'.
Mr Wilson sates,
'Conducted in person, AGMs provide retail investors with the ability to directly and publicly asks questions of a company’s Board of Directors. The virtual alternative, as we have experienced this year, allows Boards to omit, rephrase and reinterpret shareholders’ questions. Retail shareholders will be unfairly impacted by this proposal as they have limited access to a company's Board and management team outside of an AGM'.
Mr Wilson has called on retail shareholders to make a submission to the consultation and/or to contact their relevant member (with the option to use a supplied statement) registering their concerns.
The statement reads:
'As a retail shareholder, I oppose the proposed relaxation of companies’ requirement to conduct transparent AGMs. Without physical meetings, retail shareholders will face yet another disadvantage in accessing companies, asking questions and participating in a transparent process.'
Other groups have also reportedly registered concerns
The AFR reports that concerns have also been raised by other groups including the Australian Council of Superannuation Investors (ACSI) and Sandon Capital because of negative impact virtual meetings have on shareholder participation.
