Shareholders are not present
– they log in to virtual meetings from home…
Corporate South Africa has been in national lockdown since late March. However, business life must go on. This includes the fact that boards of all companies have struggled to call shareholders’ meetings. The only option is to opt for virtual shareholder meetings.
Holding a virtual shareholder meeting is a new experience for all companies. Several commentators were highly critical of some JSE-listed issuers who did not pay enough attention to the practical difficulties of this approach.
Poor planning of a virtual shareholder meeting.
A good example is the Zeder AGM held on 17 July 2020 on which @smalltalkdaily reported as follows:
“27 min $JSEZED Zeder AGM One word “disappointing” Shareholders questions edited or not even read out to reply Skimpy/token Company feedback Shareholders’ rights to question mag’t severely trampled on. This was a POOR AGM & unworthy of PSG Group.”
The provisions of the Companies Act 71 of 2008, as amended (“Companies Act”) and these companies’ respective Memorandums of Incorporation (“MoI”) are the sources of concern. Provisions exist for shareholders’ meetings to be held entirely by electronic means. However, few companies are able to fully comply with these provisions.
The reason for this is that neither their MoI nor the Companies Act cater for the practical issues impacting on virtual-only shareholder meetings.
We list six issues that the boards of companies should consider when planning for an upcoming shareholders’ meeting. See also “Corporate boards: its role and function“.
The MoI is always the point of departure. The focus is on what the company and directors are allowed, and not prohibited, to do.
If the MoI is silent on an aspect, they must turn to the Companies Act for guidance.
1. Where the virtual shareholder meeting may be held
Provision is usually made that the board may determine where a meeting shall be held. A virtual meeting where no shareholder is physically in attendance at such a nominated place technically falls foul of this clause. This may be countered by the board nominating the city or town where the chairman resides, who would be chairing the virtual meeting.
2. Voting options
Voting by attendees on each resolution put forward by the board is usually conducted on a show of hands, as the default option. However, shareholders may rightfully insist that voting is done by poll. This will make the counting of votes passed after each resolution, problematic if not impossible. Added to this is the fact that other attendees, and also the chairman, may have been appointed as proxies for non-attending shareholders. Voting by poll will require a recalculation of the proxy votes they represent.
3. Voting processes
Proxy forms filed by shareholders who do not attend, typically appoint either an individual or the chairman, to vote the number of shares per such proxy. Proxy filing usually closes several hours prior to the commencement of a meeting, often as much as 48 hours.
However, shareholders are allowed to suspend the proxies issued at any time up to the moment of actual voting on a resolution.
This is hugely problematic as the available technology platforms cannot accommodate this functionality.
Most platforms can accommodate online voting. Attendees receive via email the voting sheet when voting needs to take place. The difficulty arises with the time it is likely to take to receive all the responses back, if at all. Until so received, the chairman cannot announce the results. Prolonging a meeting will likely result in attendees signing off.
4. Quorum at virtual shareholder meetings
Every MoI provides for the quorum of attendees that should be present at the commencement of a meeting, and at the time the voting in respect of each resolution takes place.
Unless a quorum is present at a meeting of shareholders, no voting on a particular resolution may take place. The voting has to stand over for the time being. If no quorum is present for this or any other of the remaining resolutions, the meeting has to be adjourned.
This means that the chairman should ask for a show of hands by those attending the virtual meeting, to ensure that a quorum exists. How best to do this? Technology platforms now available allows an attendee to log in to the meeting, but to then switch off the video feed and actually walk away to do something else. He/she cannot thus be considered to be an attendee as provided for in the MoI or the Act.
5. An ordinary resolution to ratify the decisions of the board
It may be prudent for the board to submit an ordinary resolution at a shareholders’ meeting ratifying the decisions taken by the board, where the company is non-compliant with its MoI or the Companies Act. This should typically be the first item on the agenda. This approach is not perfect, but at least records the fact that non-compliance is acknowledged and dealt with.
6. Amending the MoI
Better still, the boards of companies should proceed to review their MoI documentation in order to eliminate these and other practical issues faced by the company.
These are six key issues to be considered, and we are convinced that companies may identify more once they more fully research the subject.