2021 AGM Season: Trends and Predictions
As this year’s AGM season gets under way, as last year many of us are living under lockdown restrictions thanks to the Covid-19 pandemic. However, 12 months on and with vaccination programmes ramping up around the world, we can reasonably hope that we are nearer to the end than the beginning.
Much, inevitably, has changed in the past year, not least the fact that most annual meetings in 2021 are likely to be virtual again. While we have all become over-acquainted with Zoom, mute buttons and the like, the ability to continue to conduct meetings when we couldn’t get together has been vital to the continued health of businesses.
With the technology having proved its worth, for shareholders and board members alike it is no longer a talking point and investors’ minds have turned to other issues.
The AGM season “provides a crucial window of opportunity for investors to hold boards to account on the way they're running their businesses,” said Chris Cummings, CEO of the Investment Association in a recent article in Investment Week. For them to be able to do this effectively, it is vital that virtual AGMs include live Q&A sessions.
The pandemic has influenced the issues that investors are concerned about, too. Covid-19 and the responses to it threw a fresh light on a whole range of issues, including working conditions, Covid support schemes, income inequality and executive pay. Investors, after all, are consumers, too. And taxpayers.
We’re all in this together
With companies being hugely supported by governments and performance hugely dependent on the vagaries of the disease, investors are alert to profiteering and the perceived abuse of government support schemes from companies that don’t need them. They are also unhappy about attempts to warp executive compensation packages – which was already a source of contention given the gulf between C-suite packages and average pay – to ensure managers still get their bonuses at a time of government handouts and months-long furloughs for workers.
“This year, companies will need to listen particularly carefully to the mood music,” Cummings pointed out. “Investors will be looking closely to see that they are not insulating their executives from the economic realities of the pandemic, especially if their employees and shareholders have been affected financially.”
There were fears that the immediate requirements of the pandemic would relegate other issues to the backburner, as happened during the last financial crisis. Instead, the opposite has happened – there has been a realisation of how certain issues affect us all.
Chief among these is climate change. Events such as the wildfires in California and Australia, record temperatures in the Arctic Circle and record levels of hurricanes and typhoons have really focused minds on the issue and how to tackle it.
Business will not only be expected to play a key role in cutting greenhouse gas emissions, they also face risks to their operations as temperatures continue to rise, putting their profitability – and shareholder returns – at risk. Investors are becoming more aware of this and they want to know what companies are doing about it.
“Progress relies on companies providing clear and consistent data on climate related metrics, such as their carbon emissions – without this, investors are unable to take fully informed investment decisions,” Cummings said. To that end, investors will want to know how companies are reporting, through initiatives such as the Taskforce on Climate-Related Financial Disclosures.
Diversity matters
It is not just the decisions of the board, but its composition that is coming under increased scrutiny – another key theme of 2020 was the importance of diversity, highlighted by the Black Lives Matter and #MeToo campaigns.
Greater board diversity provides a greater breadth of experience and brings companies closer to the customers and communities they serve, and many investors now want to see more action in this area. There is still a long way to go on appointing more women and people from ethnic minorities, and even on reporting the ethnic make-up of boards.
Another area where there is a lack of transparency that needs to be addressed is in company audits. There have been a number of scandals in recent years due to poor auditing. “In 2020, the vast majority of the UK's largest companies failed to disclose how they have assessed the quality of their audit and only a fifth of the demonstrated how the audit committee had challenged management's judgement,” Cummings pointed out. “Yet, a high-quality audit is vital to ensure that investors have confidence in a company's annual report and can make fully informed long-term investment and stewardship decisions.”
Companies do not always like the scrutiny of investors, but it is crucial to making them better businesses that can thrive, and provide strong shareholder returns, in the long term.