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opinion

Shareholders, here’s your chance to raise a rumpus about being muted during online annual general meetings.

The Canadian Securities Administrators (CSA), the national umbrella group of provincial and territorial regulators, is holding informal meetings with stakeholders to gather information about their experiences with virtual shareholders’ meetings during the COVID-19 pandemic.

This past spring’s AGM season marked the second time that companies used the virtual-only format because of pandemic restrictions prohibiting large gatherings. Trouble is, the quality of online AGMs varied again this year.

Although some companies tried to make virtual-only gatherings more interactive for investors, others failed to fix flaws with the meeting format, which had the effect of silencing shareholders.

As a result, some investors are complaining that online meetings are shielding directors and executives from proper scrutiny. Since it is expected that, with the ease of technology, virtual AGMs will continue in some capacity after this pandemic, new regulation is needed to protect shareholder rights.

So far, though, the CSA is being circumspect about its plans. Although its staff is gathering information on “the potential benefits and concerns” about the online meeting format, it won’t say if this informal consultation will result in new rules ahead of next spring’s AGM season.

“These informal discussions on virtual shareholders’ meetings will assist the CSA in considering whether further guidance or a securities regulatory response may be appropriate,” the CSA said in a statement last week.

Part of the problem is that AGMs fall outside the purview of securities regulators. Sure, the CSA issued guidance about holding AGMs during the pandemic but the conduct of AGMs is primarily subject to corporate law. The applicable statute could be federal or provincial as it depends on a company’s incorporation process. That means AGM rules vary across Canada.

Legislators won’t fix these problems unless investors demand change. What’s needed are new powers for securities regulators and new rules to ensure that shareholder rights are fully upheld during virtual AGMs. Thankfully, some investors are already airing their grievances with the CSA.

The BC General Employees’ Union (BCGEU), for one, has made six recommendations: simplified meeting registration; video playbacks of AGMs; easier processes for shareholders to ask questions; technical support for investors; opportunities for attendees to raise points of order during the meetings; and transparent disclosure of proxy voting results.

“In many cases, these online formats are prohibiting the ability [of shareholders] to make basic motions, raise points of order and verify and vote their proxies,” BCGEU treasurer Paul Finch said. “We need firm regulation to ensure that the full scope of shareholder rights that would normally exist under rules of order are protected.”

As he rightly argues, securities regulators must step in because corporate law doesn’t provide appropriate remedies for these problems. Moreover, it can be costly for shareholders to engage in a corporate law filing.

“We can’t blame glitches and hiccups on technology any more,” said Emma Pullman, BCGEU’s capital markets and responsible investment adviser. “We’ve had two full AGM seasons for us to figure this out.”

The Shareholder Association for Research and Education (SHARE), a non-profit organization, echoes these concerns, arguing that virtual meetings only work if they allow for real participation and not just one-way communication from the board to shareholders.

“This is a pivotal moment. If the regulators don’t step in and set the ground rules, our basic right of participation is going to get lost in the shuffle,” said Kevin Thomas, chief executive officer of SHARE. “We can’t let them shut off the mic before we’ve even stepped up to speak.”

Separately, Kingsdale Advisors, a shareholder advisory services firm, points out the first contested virtual meeting has already taken place in Canada, suggesting it’s not that hard for companies to establish new protocols for AGMs.

Specifically, Kingsdale highlights the example of Rifco Inc., an alternative auto finance company. Rifco signed an agreement with activists prior to its AGM in late 2020 that set up meeting procedures including for virtual balloting – a change that allowed investors to vote for their pick of management and activist nominees during the meeting.

“Companies, however, should not find comfort in the ongoing limitations to in-person events,” Kingsdale told clients during a presentation last week. “Activists will be activists and if there’s a virtual will, there’s a virtual way.”

Investors are also agitating for change in the United States. Proxy advisory firms, including Institutional Shareholder Services (ISS) and Glass Lewis, and governance organizations, such as the Interfaith Center on Corporate Responsibility as well as the Shareholder Rights Group, have all raised concerns about virtual-only AGMs.

“When asked which practices would be considered problematic related to a company’s virtual-only meeting, the top three most concerning practices according to investor respondents were management unreasonably curating questions, the inability to ask live questions at the meeting, and question and answer opportunities not provided,” ISS wrote in its 2021 Global Benchmark Policy Survey. “Each of these practices were considered problematic by at least 90 per cent of investors.”

Technology was supposed to make virtual AGMs more inclusive. Instead, it’s making it easier for companies to mute investor dissent.

Securities regulators must act quickly to introduce new rules for virtual AGMs ahead of the next proxy season. Shareholders deserve recourse when companies take their money but trample on their rights.

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