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Virtual AGMs may infringe SA’s Companies Act

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The Johannesburg Stock Exchange (JSE) is urging listed companies to comply with the Companies Act when making use of virtual annual general meetings (AGMs) that are gaining popularity because of the COVID-19 lockdown restrictions.

The JSE was responding to concerns that South African companies’ virtual AGMs risk non-compliance with the Companies Act.

The warning came from non-profit organisation (NPO) Just Share, which notes virtual-only AGMs create significant risks for listed companies if they do not ensure meaningful shareholder participation.

The caution comes after the JSE announced it debuted virtual AGMs in March to minimise the spreading of the coronavirus.

In response to the concern, the stock exchange says: “Each issuer must ensure it complies with the Companies Act in respect of virtual AGMs. The JSE is not empowered to supervise compliance with the Companies Act.”

The bourse says the cost-effective virtual AGMs are aligned with the JSE implementing business continuity measures during this period when physical meetings are not possible, and will accommodate as many participants as possible while allowing screen-sharing.

It notes the JSE platform caters for virtual AGMs and electronic voting, and also allows participants to connect from any location in the world using smart devices.

The JSE will continue to offer this service after the COVID-19 crisis, as it is a great platform for engaging with stakeholders, says the exchange.

On Thursday last week, the JSE held its first virtual listing as it welcomed its first extended trade fund listing of 2020.

Best practices

According to Just Share, some of SA’s best known blue-chips will be using virtual AGM platforms which allow for moderation of questions before they are submitted to the board.

The NPO says this is contrary to the provisions of the Companies Act, and creates potential for abuse of these systems to avoid accountability and infringe shareholder rights.

It points out AGMs provide essential opportunities for shareholders to interrogate company decision-making and hold boards to account. The COVID-19 pandemic and social distancing requirements mean a growing number of electronic or virtual-only AGMs are now being announced.

“While virtual-only AGMs are a responsible alternative at a time when far-reaching restrictions aim to slow the spread of the coronavirus, the virtual-only AGM format increases the risk of infringement of shareholder rights,” says Tracey Davies, director of Just Share.

“Some companies have already placed worrying restrictions on the ability of shareholders to ask questions at these meetings, which is contrary to the provisions of the Companies Act,” she notes.

According to Section 63(2) of the Companies Act, virtual meetings are only permissible if the electronic communication employed enables all meeting participants to communicate concurrently with each other without an intermediary.

In addition, Section 61(8) of the Act lists the minimum items of business that must be transacted at an AGM, and this includes any matters raised by shareholders, with or without advance notice to the firm.

“If a company holds a virtual-only AGM and does not allow shareholders to ask questions in real-time, without moderation, or requires all questions to be submitted in advance, that meeting will not constitute an AGM for the purposes of the Companies Act,” Davies says.

She explains the JSE wrote to all companies listed on the exchange on 17 March, reminding them that shareholders’ meetings are primarily governed by the provisions of the Companies Act and that companies must ensure these meetings comply with the applicable statutory provisions.

“The JSE has partnered with The Meeting Specialist (TMS) to launch the first virtual AGMs in South Africa to enable clients to engage with shareholders when the country is faced with tackling the COVID-19 pandemic.

“However, the description of TMS’s ‘mobile meeting services’ on its Web site states that questions submitted to the board via its app can be moderated,” Davies says.

At odds with law

She notes that a number of companies, including the JSE, Old Mutual, Exxaro and Grindrod, have announced their electronic-only AGMs will be provided via TMS.

“If the questions submitted to the board through the app are moderated, this will be at odds with the Companies Act requirements that shareholders must be able to communicate with the board without an intermediary,” she says.

Just Share adds the TMS platform is not the only electronic AGM provider with this problem.

Standard Bank’s “online shareholders’ meeting guide” states that: “Questions sent via the Lumi AGM online platform will be moderated before being sent to the chairman. This is to avoid repetition and remove any inappropriate language,” the NPO says.

“Adding to the confusion is the fact that almost every company is approaching the process and mechanisms for announcing and holding virtual AGMs differently,” Davies says.

“The JSE should establish guidelines for alignment of information to allow easy participation by shareholders which is in line with the provisions of the Companies Act.

“Shareholders must be able to ask questions and have them answered by the board without moderation and without being forced to submit them in written format in advance. If shareholders cannot interact directly with the board at an annual general meeting, the very purpose of the AGM is undermined: after all, shareholders can already submit written questions to the board whenever they wish to.

“Furthermore, companies must ensure new arrangements for electronic AGMs do not frustrate and inhibit shareholder attendance and participation at these meetings. Companies should commit to conducting in-person or hybrid AGMs as soon as it is considered safe to do so,” she concludes.

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