Coronavirus and your AGM - some things to consider
Date: 01 April 2020
Author: Craig Beeston, SGA Programme Manager, The Chartered Governance Institute
The current Covid-19 pandemic is exercising people, society and companies in many different ways. The holding of your organisation’s annual general meeting may seem comparatively low on the list of priorities when compared with the wider upheaval to life caused by Coronavirus, but it is a statutory requirement for many and is at the forefront of the minds of company secretaries and governance leads across the sector as AGM season approaches.
The outbreak has significantly disrupted work plans and habits, and the nationwide lockdown now prohibits gatherings of more than two people. Attendance by a shareholder or member at a general meeting (other than one specifically required to form a quorum) does not qualify as being essential for work purposes. Many venues booked to hold meetings are currently closed and may still be by the time meetings are due to take place. Non-essential travel is punishable by a fine or even arrest. Plus, the particular risks which the Coronavirus poses to certain demographics may prompt organisations to give consideration to those who may be among their most active members.
Consequently, AGM plans have been thrown into turmoil and the prospects for clarity on when meetings may be held – certainly in a traditional format – seem uncertain.
The Charity Commission had already announced that it will take a ‘flexible and pragmatic’ approach to charities experiencing problems as a result of the pandemic, recognising the difficulties in filing returns and accounts and holding meetings. It acknowledged that some charities may have no choice but to cancel or postpone AGMs and other meetings and advised that trustees should record any such decision in order to demonstrate good governance of the charity. The Office of the Scottish Charity Regulator similarly said it would be ‘understanding and proportionate’ where charities did not hold an AGM and so were not in fulfillment of their governing documents.
Companies do not have such flexibility, but at the weekend, the Business Secretary, Alok Sharma, announced that legislation would be introduced granting greater flexibilities for companies, including holding AGMs online or postponing them.
This all presents difficulties for organisations, uncertain as to if or when they can hold their AGM or faced with the prospect of doing so in an unfamiliar way.
Time spent planning – and seeking advice – is always time well spent, but will be particularly important now, particularly as some organisations are facing a narrow time window before their meetings must be held. While the contents of the legislation to come is not yet known, boards and governance leads will be weighing up their contingency plans.
The options available to organisations facing these issues are determined by two things: the law and their governing document. Careful reading of both before deciding what steps to take is absolutely essential.
Public companies must hold an AGM within six months of their financial year end. Private companies that are traded companies must do so within nine months, unless otherwise stated in their Articles of Association. Under the Companies Act 2006, private companies that are not traded companies are not obliged to hold AGMs, though some may be required to do so by their Articles.
This is inevitably a pressing concern for companies, particularly those which had 31 December 2019 as their most recent year end and so must hold their AGM by 30 June 2020.
Last month, The Chartered Governance Institute published guidance for companies which are wrestling with this particular impact of the Covid-19 upheaval. It then released supplementary guidance following the Government’s introduction of compulsory ‘Stay at Home’ measures. (The Institute also issued recommendations for holding virtual board and committee meetings which may prove helpful for conducting comparatively routine governance functions in a way that will be untried for many.) These contain useful information and things to think about for those across all sectors who are finding their AGM plans disrupted.
The principal contingency options the initial guidance covers are:
- Adapting the basis on which the AGM is held
- Delaying convening the AGM, if notice has not yet been given – if time allows, this may see the worst of the pandemic pass
- Postponing the AGM, if permitted by the Articles
- Adjourning the AGM
- Conducting a hybrid AGM, again where permitted under the Articles – encouraging members to participate remotely (and they must be able to participate, not simply observe) , in addition to those physically present at the venue for quorum purposes
For some organisations, certain of these will not be viable options, either because notice has already been given, or because restrictions in their governing document prevent them.
It is worth remembering that, even where adjournment and postponement are options, the AGM must still take place within the time period specified in law or in the Articles. So too must consideration be given to the effect which postponement or adjournment will have on authorities taken at the previous AGM. Some of these will be valid until the next AGM is held or 15 months after the AGM at which they were passed; others may have specified timings which will apply irrespective of the date the next meeting is held, even in the event that the Government passes legislation to extend the statutory dates for holding an AGM.
Governance leads will, of course, be paying attention to the quorum requirements for their AGM. Many UK companies will require two people present at the meeting, in person or by proxy. However, some organisations have a higher number specified in their Articles – perhaps as many as 50. Some governing documents allow for a quorum at an adjourned meeting to be the Voting Members present within 30 minutes of the scheduled start of that adjourned meeting. Again, careful scrutiny of the Articles for the provisions regarding quorum and proxy voting is essential.
There is perhaps another point worth making. These are unprecedented circumstances and minds are being focused in many different ways just to ensure things are done legally and correctly. However, issues such as quorums shouldn’t necessarily be seen as things to merely meet or ‘get around’. Annual general meetings play an important role in the democratic life of an organisation, enabling members to have their say on matters of importance and provide a mechanism for accountability and stakeholder engagement. Organisers should therefore be thinking how to ensure maximum participation, through technology if possible, rather than simply how to satisfy this or that provision.
Certainly, technology may offer the best route for some – though it is worth remembering that uptake of it may be lower among some sections of your membership. Unless explicitly precluded by the Articles, it may be possible to designate a ‘place’ for the meeting, physically attended by at least one person (the office, or more likely someone’s home), with encouragement given to others to participate (actively) by phone or videoconference. Large numbers attending any meeting remotely can make it difficult to conduct business efficiently, so effective chairing and governance support will play a key role. Attention will also have to be paid to the voting method (back to the Articles!) and whether this can be afforded by virtual means.
And finally, given the exceptional situation we now find ourselves in, it is tempting to assume that this will automatically provide mitigation if challenged for breach of obligations (not just in terms of AGMs, but also contracts). The legal position with regard to Covid-19 being declared a force majeure event has not been clear. Force majeure clauses in contracts often list types of events – war, terrorism, earthquakes, acts of government, plagues, epidemics. The latter two seem unarguable. Acts of government have been less straightforward to interpret. Previously, the public had been advised, recommended, even urged to avoid travel, gathering or social contact. The ‘Stay at Home’ measures brought in last week seem of a different order entirely.
Throughout all of the hectic processes of holding your AGM this year, it is important that you keep your members well informed. Of course, there are notice requirements that must be adhered to. Beyond these, however, recognise the importance which this meeting plays in the annual calendar of events and in the life of your organisation. Keeping members up to date with progress is vital, from ongoing correspondence to a designated area on your website. Of course, they will be dealing with innumerable disruptions in their own lives, but continuing as much as possible to carry on with things plays an important role in getting through difficult times. They will still want to be engaged and you can help with this.
Please note, the circumstances and governing documents of different organisations will vary. This short piece is intended to offer a few things to consider in advance of your AGM and there are certainly many other things to think about. It is not and should not be taken as a substitute for legal advice specific to your needs and situation. We urge anyone in any doubt to seek a professional opinion before adopting any course of action.
Craig Beeston is the SGA Programme Manager at the Chartered Governance Institute.
Did you find this blog useful? You may also be interesting in listening to our webinar, AGMs and the impact of COVID-19. Follow the link to access a recording as well as helpful supplementary resources and guidance notes.