New proxy shareholder guidelines support virtual element to AGM process

Out-Law News | 01 Feb 2018 | 2:37 pm | 2 min. read

Institutional investors in UK and European listed companies will be encouraged to support proposals for shareholder meetings which allow online attendance, provided that there remains some physical shareholder presence, according to influential guidance.

The new Institutional Shareholder Services (ISS) guidance for 2018 comes into force for annual general meetings (AGMs) on or after 1 February 2018. ISS, which is one of the largest firms providing 'proxy' advisory services to institutional investors, has produced a suite of new guidance documents, intended for use by investors across the biggest global markets including the Americas, Europe, the Middle East and Africa (EMEA) and Asia-Pacific regions.

Both the UK/Ireland and European ISS guidelines for 2018 recommend that investors vote in favour of proposals allowing 'hybrid' shareholder meetings, but against proposals allowing virtual-only shareholder meetings. This position reflects "concerns" raised by investors that virtual meetings "may hinder meaningful exchanges between management and shareholders and enable management to avoid uncomfortable questions", according to the guidelines.

The UK guidelines also contain changes to the policy against 'overboarding', recommending that shareholders vote against the election of a director who already appears to hold an excessive number of board roles at publicly-listed companies. For the purposes of the guidelines, more than five 'mandates' should be considered excessive. A similar policy is contained in the ISS guidelines for shareholders in US and Canadian companies.

UK corporate governance expert Tom Garbett of Pinsent Masons, the law firm behind Out-Law.com, explained that although the ISS previously recommended votes against directors who appear to hold an excessive number of board roles at publicly-listed companies, the use of a weighted scale with reference to 'mandates' was new.

"A non-executive directorship counts as one mandate, a non-executive chairmanship counts as two mandates, and a position as executive director, or a comparable role, is counted as three mandates," he said. "Any person who holds more than five mandates at listed companies will be classified as 'overboarded'. In addition, any person who holds the position of executive director, or a comparable role, at one company, and a non-executive chairman at a different company will be classified as overboarded."

"As a result, and although the ISS notes that exceptional circumstances may exist, directors who serve on the boards of multiple public companies will need to pay close attention to their commitments as a whole, as shareholders continue to look with circumspection on directors who spread themselves too thinly," he said.

The recommendations of the ISS on virtual AGMs were likely to align with corporate practice, Garbett said.

"The position of the ISS is that virtual-only AGMs may, among other things, allow management to avoid uncomfortable questions," he said. "As the law in this area is not settled, this position is likely to align with the practical approach the vast majority of companies and their advisers are taking to this matter, whereby a virtual element is introduced only as part of a physically convened meeting."

The ISS bases updates to its guidelines on market practice, the needs of its institutional investor clients and broader corporate governance trends. The changes made this year cover topical issues such as executive pay, director independence, board gender diversity and climate change risk.

In continental Europe, ISS will tighten limits for recommending that shareholders back general share issue requests to 10% where the shares carry no pre-emptive rights, and 50% where the shares carry pre-emptive rights. This policy "reflects the views of many institutional investors who have already tightened their own internal voting guidelines on the issue and a growing number of whom look to see that general share issuance authorities are within these thresholds", the ISS said.

"These 10% and 50% thresholds are not really new for French publicly-listed companies as the market practice for general issuances is already within the aforementioned limitations," said Christoph Maurer, corporate law expert at Pinsent Masons in France.