Commentary

Will Investors Continue to Engage at AGMs this Season?

Michael Kind, Campaigns Manager at ShareAction, considers the lessons for investors from an early date in the UK’s 2021 AGM calendar.

The Compass Group holds its AGM in early February. Alongside EasyJet and a couple of other large companies, it is typically one of the first AGMs of the year, well in advance of the deluge of meetings that take place from April to July.

It is an early marker of the season ahead. What mood are investors in this year? Is the AGM quiet – with no institutional investor attendees – or is the room full, and the board challenged?

In January, Chartwell’s – a subsidiary of Compass Group – came under fire. Acting as a government- contracted free school meals provider, there was a media storm around inadequate food provision to families.

On the face of it, this appears to be a classic ESG conflict. Were Chartwell’s compromising on their social responsibility in order to protect their bottom line? Questions were raised. Indeed, shareholders including BMO Asset Management, Legal & General Investment Management, CCLA Investment Management and M&G called on the company to answer “critical questions” in a public letter to the board.

A rare opportunity

With the AGM on its way, one would hope that responsible investors would continue to raise that demand at the meeting.

After all, the AGM is a brilliant opportunity for investors to enhance their understanding of a company’s approach to ESG. What separates it from the other avenues investors have are the opportunities to hear from a wider range of voices: retail and institutional investors, along with key company stakeholders such as workers and civil society bodies. Moreover, the whole company board is present. In most interactions between investors and companies, only some senior leadership or operational staff are in attendance.

Therefore, the AGM has added value to investors, giving them the opportunity to listen to and exchange views with other voices. In some respects, this is all the more easy, now that most AGMs will be taking place virtually, in the context of COVID-19. When AGMs revert to in-person events, or perhaps become hybrid formats, investors will be able to meet these diverse voices in person. Ultimately, the AGM is a unique opportunity for companies, shareholders and stakeholders to develop a shared vision with which to take the company forwards.

Challenge the board

And indeed, BMO Asset Management – asset manager for a range of major ESG funds such as NEST’s ethical fund – practised their ESG credentials on the AGM stage. They challenged the board on the Chartwell issue by asking a question about whether checks and balances are now in place to ensure quantity and quality. BMO told ShareAction, “We attended to make use of our rights and duties as shareholders, and to engage senior management on the issue”, having only had operational staff in attendance in their previous engagements.

This really is an excellent example of investor engagement: making a public, cross-investor call on a company to do better – and then using the AGM as an opportunity to probe further. This should absolutely be applauded.

Yet this was the only question asked by an institutional investor on ESG issues during the live Q&A at Compass, despite there being a number of ESG issues that could have been raised. Indeed, at ShareAction, we organised three AGM questions, covering Living Wage accreditation, carbon reductions and healthy diets, asked by members of our AGM activist network. Questions from other shareholders understandably focussed on financial aspects, but some did stray into more frustrating territory: one of the questions submitted complained about the absence of a hot lunch at a previous AGM.

Engagement on the agenda

The Compass AGM is a microcosm of much of what is good – and bad – about the current AGM. It can be an opportunity for investors to be active stewards, and practice what they preach on ESG. But they are also often sparsely attended, with questions on trifling (excuse the pun) matters.

The issue of investor engagement with AGMs feels ever more pertinent. As ESG issues boom in popularity in the investment world, the investment community makes increasingly bold statements and commitments on responsible investment. In the past year alone, we’ve seen BlackRock CEO Larry Fink highlight climate change and purpose in his annual letter to CEOs, and a swathe of pension schemes announce net-zero commitments.

Good stewards should maximise the opportunities available to engage with, question and ascertain information from companies on important ESG issues. They should challenge them where appropriate too – asking for changes in corporate action where required. And the AGM, as the centrepiece of the corporate governance calendar – where a company board meets with its shareholder base to discuss the opportunities and challenges they face – certainly feels like a wise avenue for stewardship.

Time for investors to step up

We are living through systemic climate, inequality, health and biodiversity crises that pose a risk to people and planet alongside financial returns. The investment community can do more to address these crises by utilising AGMs – which are a hugely useful tool for investors as they work to address these interlinked crises. We want to challenge investors – whether they be individual investors or major institutional asset managers or owners – to step up and follow the example of BMO, as we head into AGM season 2021.

This challenge comes in the context of years of poor attendance at AGMs from the majority of institutional investors. We know this at ShareAction; we’ve been working with our network of AGM activists for upwards of 10 years, asking questions on a range of themes such as climate change, the living wage, and the gender pay gap. In most cases, ours have been the only ESG questions, if not the only questions asked at all.

Our AGM activists have embodied some of the best elements of investor stewardship:  they have brought considered, well-researched and financially material questions to companies in the FTSE 100, and increasingly globally. They have often engaged with companies over multiple years, both to progress key ESG issues, and to offer thanks and congratulations where they are due. But that isn’t enough anymore. As ESG booms in popularity, investors should consider the AGM as a key opportunity to practise what they preach.

AGMs’ structural flaws

We aren’t blind to the problems that AGMs currently have. We know there are a range of reasons why institutional investors don’t attend. Many institutional investors have other opportunities to engage with boards, through analyst calls, direct lines to directors, and more. And we appreciate that many investors hold thousands of stocks, and of course wouldn’t be able to attend the AGMs of all of their holdings. We also see a structural flaw with the AGM as is: with most investors voting on resolutions largely in advance of the AGM itself, there is less value to questioning the board at the event, as this will not feed into voting.

Our recent report ‘Fit-for-Purpose? The Future of the AGM’, developed with a panel of experts in the corporate governance and investment sectors, sets out our vision for the AGM of the future, and how a revamped event will deliver significant value for investors.

It also outlines why investors should begin to engage with AGMs through a values lens immediately. Responsible investors increasingly understand that if corporate actions produce negative outcomes for company stakeholders, those actions will eventually be detrimental to shareholder investment outcomes. The AGM is a vital platform to understand how this pans out in specific companies, through providing clear value to investors in enhancing their understanding of the approach their investee companies are taking on ESG issues and risks.

Commitment to transparency

This AGM season and in the future, we want to see investors embrace the value of AGMs. We hope to see them working collaboratively with each other where possible, to ensure that there is a visible and vocal investor presence at as many AGMs as possible. Our report suggests that investors should recognise the following considerations as significant in determining their policies for which AGMs to attend:

  • The top 10 companies they hold in terms of market value
  • Any company where they hold more than 3% of the total share capital
  • Companies where they have significant ESG concerns

It also suggests that to demonstrate their commitment to ESG and be transparent for their beneficiaries, investors should:

  • Publish the names of the companies whose AGMs they have attended on their website
  • Provide a rationale as to why they attended these AGMs
  • Provide an account of their participation

Whether a company is facing a ‘live’ ESG issue as Compass were – or are navigating the stormy weather of the current crisis – it is crucial for investors to engage with their investee companies, and the AGM presents an excellent forum through which to do so.

We challenge investors to follow the lead of BMO and use the AGM as an opportunity to actively engage with companies this AGM season.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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