Despite calls for Australia to get ‘in line with the 21st century demands on organisations’, submissions, commentary and incidents throughout the year highlight substantial issues concerning stakeholder engagement through virtual meetings.
As part of the federal government’s COVID-19 response in May, Treasurer Josh Frydenberg published a legislative instrument providing temporary changes to the Corporations Act 2001 (the Act) and Corporations Regulations 2001, which, from May 6, allowed companies to hold virtual meetings and electronically execute documents, for six months.
Measures in the Corporations Coronavirus Economic Response Determination (No 1) 2020 (Act) (the Determination) followed related guidelines by ASIC on March 20 — which allowed companies to conduct their AGM online or up to two months past the prescribed deadline — and would have ended November 6 if not for a six-month extension in September 21’s Corporations (Coronavirus Economic Response) Determination (No. 3) 2020.
The measures have been welcomed by a number of business groups, and an interim report by the Senate Select Committee on Financial Technology and Regulatory Technology (the committee) recommended they be made permanent while, in regards to virtual meetings, “ensuring the needs of shareholders are taken into account”. The government has since released an exposure draft bill that would entrench these changes.
However, an examination of submissions, commentary and incidents throughout the year highlights substantial issues concerning stakeholder engagement through virtual meetings — namely, the capacity for Australian companies to quash stakeholder concerns — as well as legitimate cause to, in the words of one proponent, bring the Act “in line with the 21st century demands on organisations”.
How the changes work
According to guidance developed by Governance Institute of Australia and the Australasian Investor Relations Association, arrangements in the Determination expanded on ASIC’s guidelines by enabling all meetings under the Act, such as general meetings and creditors meetings, to be held online rather than just AGMs.
This meant enabling quorums, votes, notices and asking questions to be facilitated electronically, and for information required for the meeting to be circulated and accessed electronically; as HWL Ebsworth Lawyers explained at the time, the original instrument’s additional notice requirements meant all notices must include information setting out how each member can participate in the meeting, “including how they can participate in a vote taken at the meeting, speaking at the meeting and to the extent they are entitled to do so”.
Following news of the determination, ASIC developed guidelines for virtual AGMs, which, per COVID-19 requirements, encouraged companies to hold either:
- ‘virtual’ meetings (a meeting where all shareholders participate via online facilities); or
- where circumstances permit, ‘hybrid’ meetings (a small physical meeting linked with online facilities that allow remote participation).
This commission also emphasised that shareholders at either meetings should be given equivalent opportunities to participate as in-person events.
As HWL Ebsworth notes, provisions for the execution of documents in turn permit signatories:
- to execute physical documents in counterparts; or
- to execute or otherwise accept a document that satisfies the requirements of the provisions in the Electronic Transactions Act 1999 in relation to electronic acceptance, provided that:
- a method is used to identify the person in the electronic communication and to indicate the person’s intention in respect of the contents of the document; and
- the method used is as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement.
Examples provided include pasting a signatory of a signature onto the document, signing a PDF on a mobile tablet, and using cloud-based signature platforms such as DocuSign.
Policy development for virtual meetings
In releasing its exposure draft bill, Corporations Amendment (Virtual Meetings and Electronic Communications) Bill 2020, the federal government argued that by “modernising the Corporations Act 2001 and associated regulations through these reforms, companies have the opportunity to utilise technology to satisfy their legal obligations.”
“In response to stakeholder feedback, the reforms proposes additional enhancements to ensure corporate accountability and transparency,” the current description reads. “Overall, the permanent reforms will provide companies flexibility when engaging with their shareholders, reduce costs and drive efficiencies.”
On enhanced transparency measures, the bill’s explanatory memorandum notes that it would introduce a new requirement that minutes for virtual meetings “must include any questions or comments submitted by a shareholder or member (before or during the meeting)”.
The bill followed support for the original measures cited by the committee from groups such as the Governance Institute, the Australian Institute of Company Directors, and the Australasian Investor Relations Association, with proponents emphasising not just increased efficiency through technology but enhanced access for stakeholders who were previously limited through geography, physical or mental capacity, and other restrictions.
Head of Policy Advocacy at the AICD Christian Gergis told the committee that initial analyses by Computershare of virtual AGMs conducted through the course of April and May 2020 “indicate that overall attendance has increased by 36% relative to the same period in 2019, suggesting that the shift to digital platforms has facilitated greater shareholder attendance and engagement”. Gergis also noted that three major ASX 50 company AGMs during this period received an average of 33 written questions, “indicating that the electronic format has not undermined shareholder engagement, nor has there been discernible change in the voting patterns of institutional investors”.
However, the Australian Shareholders’ Association (ASA) noted that its representatives had attended over 50 fully virtual AGMs since March 2020, with several issues arising from a shareholder perspective, including being unable to access online AGMs due to poor internet connectivity or physical constraints, as well as reduced feelings of accountability:
An important part of maintaining corporate accountability, the shareholder meeting is a forum where even the smallest retail holder can question the board and the executives. In a physical meeting, the response or lack of response to these questions is laid bare for all attendees to see. This is not the case with an online meeting where moderators control the flow of questions and ignored questions may not be apparent to the audience until complaints are made to the regulators after the event.
As way of reform, the ASA urged that companies should be required to publish a record of all questions submitted
by shareholders — a recommendation seemingly taken up in the draft bill — and indicated a support for an increased use of hybrid meetings rather than either fully virtual meetings.
This suggestions has been echoed by Labor, which dissented from the government in only supporting hybrid, not virtual meetings.
Virtual vs physical vs hybrid…
Throughout 2020, the Governance Institute of Australia (GIA) has emerged as one of the loudest voices to make the allowances for both virtual meetings and e-documents permanent.
A national membership association “advocating for a community of 40,000 governance and risk management professionals from the listed, unlisted and not-for profit sectors”, the body offers short courses and is the only Australian provider of chartered governance accreditation.
In its submission to Treasury’s draft legislation, GIA calls for a version of the bill with no requirements on meeting format or, curiously, the new requirements for recorded shareholder questions and comments:
- The Corporations Act should be technology neutral. Currently laws do not account for technology let alone future digital innovations/crises.
- Meeting formats (i.e: virtual, hybrid, face-to-face) should not be prescribed. Companies to be able to choose format most suited to them and their members.
- Allow companies to execute documents electronically.
- Allow companies to send notices of meeting and materials using an electronic or physical address nominated by the shareholder or member rather than paper-based methods. This would help reduce costs and paper waste.
- Not require all votes at virtual meetings be taken on a poll, a proposal that would particularly disadvantage smaller companies.
- Not require imposing more stringent requirements for minutes of virtual meetings than for minutes of physical meetings, i.e, hardwiring a requirement to record questions and comments at virtual meetings in the minutes.
Additionally, CEO Megan Motto noted that GIA members reported either virtual or physical meetings as their preferred means of holding an AGM; hybrid meetings are apparently perceived by some as “more logistically arduous (essentially two types of events are being covered – physical and online – for the one meeting) which also doubles the risk profile of the meeting.”
However, shareholder activist and Crikey founder Stephen Mayne has slammed the proposed bill, noting that while hybrid meetings should be welcomed — “Rather than flying to the US to quiz Rupert Murdoch at his Fox Corp and News Corp AGMs, it would be far easier to ask live questions from home in Melbourne” — virtual meetings in practice have disempowered shareholders throughout 2020.
“By all means, have a virtual component to the meeting, as many companies already do,” Mayne argues. “But if you don’t bring the shareholders, directors and executives into the one room, you will lose the accountability that comes from sustained questioning.”
Examples cited by Mayne include:
- the Commonwealth Bank deliberately ignoring a range of questions submitted by some of its critics, curtailing what is normally a four hour-plus meeting to only two hours this year.
- Rupert Murdoch’s continued suppression of shareholder participation and debate at the News Corp AGM when his company secretary “abruptly terminated the virtual meeting after just 26 minutes when there were still numerous unanswered written questions.” Mayne notes, however, this followed a long track record of Murdoch finding similar ways to suppress shareholder engagement — like his limiting of physical attendance numbers to fewer than 10 (a trick Mayne found, in 2019, was a workaround to elicit the now-infamous “there are no climate change deniers around, I assure you” claim).
- Crown diffusing recent controversies over the Bergin inquiry by controlling all audio/visual in the meeting and having company secretary Mary Manos read stakeholder questions.
Other critics of the proposal came from the world’s biggest proxy advisory firm, ISS, which said the move would “stifle questioning and accountability of boards”.
Responding to questions from The Mandarin on these incidents, Motto only says that, as the organisation noted in its submission, its members “support finding effective ways for companies that are holding virtual meetings to do so in a way that does not diminish opportunities for member engagement.”
“As is the case with anything new or introduced at short notice, some 2020 AGM experiences may have been reported as having sub-optimal or other unintended consequences,” Motto says. “Our members are committed to working collaboratively with all stakeholders to minimise these concerns and then to provide ideas and solutions that enhance the virtual meeting experience for all parties.”