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Are online annual general meetings muting shareholders?

That question should be top of mind for legislators as they modernize Canada’s capital markets. This spring’s AGM season marks the second time companies have used the virtual-only format because of COVID-19 restrictions that prohibit large gatherings.

Protecting public health was the goal. But online AGMs also appear to be limiting investor participation and shielding corporate boards and management teams from an appropriate level of shareholder scrutiny.

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Companies can be forgiven for being caught flat-footed by the pandemic’s first wave. Many scrambled to revise their AGM plans last year. Some technical glitches were unavoidable during those early days.

This year’s AGMs should have been substantially better for shareholders. Some companies did make efforts to increase live interactions between investors and executives.

But some annual meetings had no investor questions at all. It’s hard to believe that shareholders have no queries during a global crisis that’s resulted in prolonged economic shutdowns, layoffs, asset sales and a renewed focus on the yawning gap between executive compensation and remuneration for rank-and-file workers.

Equally troubling, some virtual AGMs this year featured only softball queries from select shareholders and unconventional tactics to silence activist investors.

Such developments should raise red flags for legislators and securities regulators. Virtual AGMs should be as open and interactive as in-person events, especially since many companies were using a hybrid model prior to the pandemic.

Although many companies will be eager to resume in-person meetings when this health crisis is over, some may be tempted to continue with the virtual-only format. That’s why tougher rules are needed to govern meeting conduct and to prevent companies from using technology to silence shareholders.

“Some companies have blatantly used the virtual format to limit participation, for example by only accepting questions in writing and then selectively answering them, or rewording them to suit their own narrative,” said Kevin Thomas, chief executive officer of the Shareholder Association for Research and Education.

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“We’ve even had companies refuse to allow us to present our own shareholder proposals at the meeting, which restricts our ability to respond to the board in real time on the issues at hand.”

Investors have taken notice. One Globe reader outlined concerns about “AGM crickets” in a recent e-mail to me.

There were no investor questions, for instance, posed at George Weston Ltd.’s annual meeting last month, according to a transcript of the event.

George Weston was accepting questions from registered shareholders through its online platform, but it appears that investors had no queries.

Fair enough, but the company’s decision to sell its 139-year-old bakery business had prompted analysts to question whether the holding company would cease to exist following the divestiture.

Were shareholders incurious about the sale or did they find the process of asking questions too complex at a virtual AGM? It’s certainly easier to line up at a microphone at an in-person meeting.

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Moreover, George Weston’s majority stake in Loblaw Companies Ltd. should have prompted investor inquiries about the grocery retailer’s decision to end hero pay for essential workers during the pandemic, which provoked considerable public outrage, including from Conservative Party Leader Erin O’Toole.

There were no investor questions at the Loblaw AGM either, despite a shareholder proposal from BCGEU (the British Columbia Government and Service Employees’ Union) about the company’s capital and risk management practices during the pandemic. BCGEU did point out the poor optics of Loblaw pursuing a share buyback instead of extending employee hero pay, but it seems other investors had no queries about this or any other issue.

TC Energy Corp.’s AGM, meanwhile, featured three facile questions from an investor identified as Jonathan Sadler. It’s unclear if he is the same Jonathan Sadler who is managing director of Genoa Management, which provides investor relations and communications advice to corporations. Mr. Sadler did not respond to e-mails seeking comment.

Perhaps the speaker process for virtual AGMs requires more transparency.

New rules are also needed to prevent abuse of process. Case in point: Exxon Mobil Corp.’s decision to take a one-hour recess during its annual meeting – ostensibly to count votes during a proxy contest with a dissident shareholder. The company, though, used the impromptu break to call other shareholders, urging them to change their votes. The tactic failed and the activist investor succeeded in replacing three Exxon directors.

Part of the problem in Canada, at least, is that AGMs fall outside the purview of securities regulators. New laws are needed to give them clout.

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Yes, the Canadian Securities Administrators, the national umbrella group of provincial and territorial regulators, issued guidance about holding AGMs during the pandemic. But it also notes the conduct of AGMs is primarily subject to corporate law. The applicable statute can be federal or provincial – it depends on a company’s incorporation process.

That means AGM rules vary across the country. Some provincial securities regulators don’t even track investor complaints about AGMs.

“I’d say that at minimum, every province, when allowing electronic meetings, should require that companies offer an open question period, allow shareholders to be heard live, and simplify registrations to make entry and participation easier for shareholders,” said Mr. Thomas.

“Shareholder meetings are one of the mechanisms we have to hold corporations accountable for their actions, and if we aren’t careful, we’ll end up with an annual pantomime of accountability rather than the real thing.”

How typically Canadian.

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