2021 AGM Mid-season Trends

1. Executive remuneration vs. employee experience

There has been little tolerance for remuneration reports that do not closely align with investor expectations on executive remuneration best practice. We have seen sub-80% passes on remuneration related resolutions as a result.

In a year where employees went above-and-beyond and shareholders potentially didn’t receive dividends or have been tapped for additional capital, it’s difficult to justify performance-based bonus pay-outs, salary increases and issuing long-term share option incentive plans. That’s even more true where government funding has been accepted and not repaid.

Anne-Marie Clarke, Head of Corporate Governance at Boudicca from EQ commented:

“Executive pay has been a sizzling topic for shareholder scrutiny and dissent, with several resolutions failing spectacularly. Companies can no longer simply expect their decisions on pay to be made and accepted. Covid has shone a spotlight on the remuneration committee chairs responsible who are having to take more and more accountability for their decisions. Even pre-pandemic we were seeing this shift but Covid has amplified it.”

2. Leniency on Board diversity

Going into the AGM season, there was nervousness from companies who hadn’t achieved the Hampton-Alexander Review target of 33% female board representation. Taking into account the pressures of COVID with many boards in risk management mode, investors have shown leniency and we haven't so far seen widespread major dissent resulting in directors not being re-elected.

Anne-Marie Clarke commented:

“The more telling reason is this: gender diversity is only one part of a much more complex board composition puzzle. Ethnicity, independence, tenure, skills – these are just a handful of factors boards need to consider for the longer terms needs of the business. Investors will weigh up these different factors when voting against chairs, or individual directors, and if plausible succession plans are explained, some leniency appears to be being given on gender diversity, for now. So far this season, major negative voting appears to have been saved for those companies suffering a combination of issues.”

3. Investors say no to virtual only meetings

As in 2020, most larger companies are running hybrid AGMs and this is the likely way forward. Virtual-only is still a no-no. Companies that have tried to update their articles of association to allow them to hold virtual-only meetings continue to receive pushback from investors. 

Sarah Graham, Deputy Registrar at EQ commented:

“Many clients were nervous that their online events would be flooded with questions but the volumes expected haven’t materialised. We’re seeing lower attendance online but higher quality engagement, with less of the individual shareholders who traditionally pop up at physical AGMs for a coffee and a catch up without too much interest in the business of the day. Typically single shareholders can be very vocal in AGMs, but online meetings make it easier for the Chair to conduct an orderly session, with some that have traditionally overrun by hours finishing on time with all questions covered.”

Anne-Marie Clarke added:

“We’ve seen many companies put forward amendments to their Articles to approve hybrid meetings, and in some cases fully virtual meetings. One client said their rationale was ‘we can’t rely on the Government to approve a dispensation as to how to hold a shareholder meeting’, particularly now that the temporary measures under the Corporate Insolvency and Governance Act 2020, which allowed “closed meetings” were allowed to expire in March.”

3. Storm still ahead for climate change

We’ve yet to see a major push for climate change resolutions or major dissent on companies’ climate change activities, albeit investors are making their positions and expectations very clear. With the reporting requirements against the Task Force on Climate Related Financial Disclosures (TCFD) kicking in at the start of 2021, and the UK hosting the UN Climate Change Conference of the Parties (COP26), the pressure on companies will continue to build.

Anne-Marie Clarke commented:

“New reporting requirements mean climate change targets will be a huge future focus for boards. We expect investors to push for a direct link between hitting these targets and executive remuneration”.