Most listed companies will have begun to think about their 2021 annual general meeting (AGM), with the majority of AGMs set to occur between September 2021 and January 2022.
This article sets out some key steps that a company can take to prepare for its AGM. In particular, this article takes into account:
- ASIC Corporations (Extension of Time to Hold AGM) Instrument 2021/770, which gives public companies an additional two months in which to hold their AGM.
- The temporary amendments to the Corporations Act 2001 (Cth) (CA 2001) made by Schedule 1 to the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (TLA Act) (for more information, see Legal update, Parliament amends Corporations Act to facilitate virtual meetings and electronic execution of documents and to introduce state of mind test into continuous disclosure liability regime).
This article also considers the government’s proposed permanent reforms to the CA 2001 in respect of general meetings. In particular, Companies and their advisers should note that on 30 August 2021, Treasury released for public consultation the Treasury Laws Amendment (Measures for Consultation) Bill 2021: Use of technology for meetings and related amendments (TFM Aug 2021 Bill). If passed, the TFM Aug 2021 Bill will permanently amend the CA 2001 to allow companies and registered schemes to hold physical or hybrid meetings, or virtual meetings if permitted by the company’s constitution. For more information about the TFM Aug 2021 Bill, see Legal update, New exposure draft legislation released: using technology to hold company meetings and to sign and send documents (August 2021).
The trends that arose in the 2020 AGM season look set to continue in the 2021 AGM season. The key themes of the 2020 AGM season were:
- An emerging theme of accountability from boards, including, where relevant, the board’s response to the effects of the 2019 novel coronavirus disease (COVID-19) on the company.
- A focus on environmental, social and governance (ESG) issues, with climate change risk and sustainability emerging as the most frequently raised ESG issues.
- Strikes on remuneration reports by shareholders. In particular, there is likely to be a focus on board and executive remuneration and variable pay in light of the COVID-19 pandemic.
Key steps and considerations for company boards and their advisers
1. Determine the time and format of the AGM
While ordinarily companies must hold an AGM within five months of the end of the company’s financial year, the Australian Securities and Investment Commission’s (ASIC) has made ASIC Corporations (Extension of Time to Hold AGM) Instrument 2021/770, which extends the period in section 250N for a public company to hold its AGM by two months, giving companies with balance dates between 21 February 2021 and 7 July 2021 up to seven months after their financial year end to hold an AGM.
This means that, for example, a public company with a balance date of 30 June 2021 will have until 31 January 2022 to hold its AGM.
However, despite similar relief last year in the form of ASIC’s no-action position, most companies, particularly in the ASX100, held their AGM within the usual statutory timeframes using virtual or hybrid technology. In particular, almost all of the ASX 100 held virtual meetings.
Boards will again need to determine the most appropriate format for the meeting, which is again anticipated to be a wholly virtual meeting or a hybrid meeting where most attendees attend using virtual meeting technology, provided this is permitted by the company’s constitution. Note, however, that if the TFM Aug 2021 Bill is passed before a company dispatches its 2021 notice of AGM, the company will only be able to hold an entirely virtual meeting if the company’s constitution expressly permits a virtual meeting.
2. Consider resolutions to amend the constitution to permit the use of technology for meetings
In 2020, many companies proposed resolutions to amend their constitution to allow the use of technology to facilitate the calling and holding of hybrid and virtual meetings. Under the proposed permanent changes to the CA 2001 in the TFM Aug 2021 Bill, companies may only hold wholly virtual meetings if a wholly virtual meeting is expressly permitted or required by the entity’s constitution (see Legal update, New exposure draft legislation released: using technology to hold company meetings and to sign and send documents (August 2021): Revised provisions on meetings of members of companies and registered schemes).
This means that, unlike the temporary provisions under the TLA Act, entities will not be able to rely on the CA 2001 to hold a wholly virtual meeting once the provisions of the TFM Aug 2021 Bill commence. For this reason, companies whose constitutions are silent on virtual meetings may wish to put a special resolution to members at their 2021 AGM to amend the constitution to expressly permit wholly virtual meetings if this was not done in 2020.
3. Determine how the notice of AGM will be sent
Subject to certain conditions, temporary Part 2G.5 of the CA 2001 allows a company to give documents relating to the AGM, such as the notice of meeting, to shareholders electronically. A company may give the notice of meeting electronically by either:
- Giving the document to the person by using electronic means, for example, by sending an email.
- Using electronic or traditional means to provide the person with details sufficient to allow them to view or download the document electronically, for example, by giving them a card or sending them an email with a link to a website.
Companies will therefore need to decide whether to send a traditional, physical, notice of meeting to shareholders or an electronic notice in accordance with temporary Part 2G.5 of the CA 2001. For more information, including the conditions that must be met to give documents relating to the meeting electronically, see Legal update, Parliament amends Corporations Act to facilitate virtual meetings and electronic execution of documents and to introduce state of mind test into continuous disclosure liability regime.
4. Announce AGM date and closing date for director nominations (listed companies only)
ASX-listed companies must announce the date of their AGM and the closing date for receipt of director nominations at least five business days before the closing date for receipt of such nominations (ASX Listing Rule 3.13.1). Companies may have already met this requirement by giving to the ASX a calendar of key dates that includes these dates. However, companies that have not given ASX this information must do so within the required timeframe.
5. Ensure the company’s annual report is complete and accurate
Companies are ordinarily required to complete their financial reports within three months of the end of financial year. This means that, for entities with a 30 June end of financial year, reports must be lodged by the end of September. In 2021, however, for listed and unlisted entities with balance dates between 23 June 2021 and 7 July 2021, the deadline to lodge financial reports under Chapters 2M and 7 of the CA 2001 has been extended by one month. This means that most companies will have until the end of October 2021 to lodge financial reports. The board should carefully consider the effects of the COVID-19 pandemic when preparing the company’s 2021 annual report.
ASX-listed entities must also include an operating and financial review (OFR). Importantly, companies should ensure that their OFR discloses key risks, including environmental and other sustainability risks (including climate risk). ASIC Regulatory Guide 247: Effective disclosure in an operating and financial review sets out ASIC’s expectations in respect of a company’s OFR.
6. Release the notice of AGM to the market ASAP (and allow time for review, if required)
Companies should release their notice of meeting (NOM) as soon as possible, allowing them to better prepare shareholder communications; respond to shareholder-requisitioned resolutions and engage earlier with proxy advisers. For ASX-listed companies, draft NOMs that contain resolutions for Listing Rules purposes must be submitted to the ASX for review before they are sent to security holders (ASX Listing Rule 15.1.7). The ASX may take five business days to advise whether it objects to a draft document, and may extend that deadline if it needs further time to review the document (ASX Listing Rule 15.1). Listed entities should keep in mind these timing requirements and allow sufficient time to submit their draft NOMs.
7. Review the share register
Boards should monitor and analyse the share register, preferably well in advance of the AGM. This may help to determine whether any of the company’s shareholders are known for particular views or action and therefore more likely to engage in shareholder activism.
8. Engage early with proxy advisers
Once the NOM is released, companies can then engage with proxy advisers, who are responsible for providing reports to shareholders (typically, institutional investors) that contain the proxy adviser’s voting recommendation for each resolution to be considered at the AGM.
9. Engage early with institutional investors
There is increasing pressure on institutional investors (particularly superannuation funds) to take a more active role in their investments. Accordingly, in recent years institutional investors and companies have increased their engagement in corporate governance matters. Institutional investors can be critical to the success or failure of a resolution.
10. Carefully consider the remuneration report
The company’s remuneration report is likely to be closely scrutinised at 2021 AGMs; in particular, the board’s decision to pay or not to pay executive variable remuneration. ASIC has published ASIC Information Sheet 245 Board oversight of executive variable pay decisions (INFO 245), which sets out practical guidance to support board oversight and the exercise of discretion on the variable pay outcomes of large listed companies’ senior executives.
11. Prepare to respond to shareholder-requisitioned resolutions
In 2020, shareholders of six ASX 200 companies requisitioned climate change or human rights related resolutions at the company’s AGM. There was also generally increasing shareholder support for resolutions on ESG issues.
With this trend likely to continue in the 2021 AGM season, companies should:
- Ensure that, where appropriate, the company’s operating and financial review and directors’ report makes appropriate disclosures relating to ESG issues.
- Engage with key institutional investors to determine whether they intend to requisition resolutions and, if so, the substance of those resolutions.
- Prepare announcements responding to any resolutions requisitioned under section 249N of the CA 2001. A company that has received a notice of intended resolution under section 249N must, under the Listing Rules, make an announcement within two business days of its receipt.
- Prepare appropriate responses to any resolutions requisitioned at the AGM.
- Consider putting forward their own resolutions relating to ESG issues.
12. Pay attention to gender diversity on the company’s board
Gender diversity among the boards of ASX 200 companies has improved overall, reaching 33.7% in August 2021 (see AICD board diversity statistics) and, for the first time in history, there are no all-male boards on the ASX 200 (see AICD Media Release (26 August 2021)). There is room for improvement, however, and shareholder groups, in particular the Australian Council of Superannuation Investors (ACSI), continue to push for increased gender diversity on boards. ACSI’s general policy is that where a company has zero women directors, ACSI may make recommendations to vote against any newly appointed male directors (see ACSI website: Board diversity).
With this in mind, companies whose boards lack diversity should carefully consider the directors being put forward for election or re-election and, where possible, ensure gender diversity on their board to avoid “against” votes on director election resolutions and, potentially, shareholder-requisitioned resolutions calling for the appointment of new directors.
13. Prepare for a board spill
Remuneration was a key focus in 2020, with a number of first strikes against the remuneration report. This trend looks set to continue as shareholders scrutinise how well companies have responded to the COVID-19 pandemic, and boards should remain prepared for remuneration strikes in 2021. Companies that received a first strike in 2020 should prepare to respond to a second strike.
Under the two-strikes rule, a company that received a first strike against its remuneration report in 2020 may face a spill resolution if it receives a second strike in 2021. Activist shareholders may also attempt to spill the board by voting against the company’s remuneration report.
Engaging early with proxy advisers and institutional investors can also help a company to gauge whether there may be a board spill.
For a guide to Practical Law’s resources relating to general meetings and members’ resolutions, including resources relating to calling, holding and recording general meetings, and standard form minutes of meetings and forms of resolution for specific transactions, see Toolkit, General meetings and members’ resolutions.
Practical Law subscribers can access more information on preparing for an AGM (including guidance on the logistics of holding a virtual meeting and drafting a NOM), and preparing for and responding to shareholder activism, requisitioned resolutions and board spills in the following checklists and practice notes on the Practical Law Australia site:
- Practice note, General meetings.
- Practice note, Notices of general meeting.
- Standard document, Notice of general meeting (in-person, hybrid or entirely virtual meeting).
- Checklist, Logistics of shareholder meetings held using technology.
- Practice note, Shareholder activism.
- Practice note, Climate change and shareholder activism.
- Checklist, Key strategies for preparing for shareholder activism.
- Checklist, Key strategies for responding to an approach by activist shareholders.
- Checklist, Examples of shareholder-requisitioned climate change resolutions affecting ASX 200 listed entities in 2020.
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