The corona pandemic and its social consequences will probably be with us for a long time – despite rapid progress in the development of a vaccine. Not all of these consequences are negative. For example, the contact restrictions due to Covid-19 have boosted digitization or the acceptance of working from home.
The pandemic has also left clearly visible traces in corporate law. The most remarkable thing here was the sudden, almost complete change from shareholder or general meetings as pure face-to-face events to completely virtual meetings. Even if the legislature had laid many foundations for years, companies have so far been extremely reluctant to apply them in practice. With the law to mitigate the consequences of the Covid-19 pandemic in civil, insolvency and criminal procedure law of March 27, 2020, this has suddenly changed in the last season of the annual general meeting.
All DAX companies that had not yet invited to their annual general meeting when the law came into force unanimously made use of the option of a virtual meeting. In addition to the fact that this was the only way to take account of the dynamic infection process, the simplifications of the law also brought very tangible advantages for companies – starting with significantly lower costs and greatly reduced organizational effort to relaxed attendance requirements for the members of the organs.
On the other hand, the innovation in the 2020 general meeting season brought massive restrictions on shareholders’ rights: The invitation period for general meetings can be shortened to just 21 days, shareholders must send their questions no later than two days before the meeting and the company is free to ask questions summarize or leave questions unanswered. So-called two-channel communication, i.e. the opportunity for shareholders to speak or ask questions during the Annual General Meeting, does not necessarily have to be offered.
After all, the possibilities of contesting technical problems in the context of virtual implementation are extremely limited. Even if the companies have not made full use of all the advantages in practice, they can currently enjoy them without regrets.
A general meeting is not a folklore event
With a statutory ordinance of October 20, 2020, the federal government has now extended the validity of the relief until the end of 2021 – despite increasingly critical statements in the same form and thus in particular while maintaining the aforementioned disadvantages for shareholders. It will be exciting to see how the practice will deal with the extension of the given possibilities.
Particularly with regard to the practice of shareholders’ right to ask questions and speak, there is certainly a great temptation for companies to stick to the 2020 procedure and not allow direct communication for shareholders during the general meeting. Because the prospect of sifting through questions in the run-up to the meeting and preparing the answers in relative calm is no doubt tempting. And even before the pandemic, there were many voices dismissing general meetings as pure “folklore events” and who would certainly be happy to get by without polemical statements and annoying questions in the future.
On the other hand, it should not be forgotten that the general meeting is usually the only opportunity for small shareholders to enter into dialogue with management at least once a year and to get a direct impression of the company and its development at least a small part belongs to them. A lively Annual General Meeting is not only part of a good shareholder culture; it is basically also important for every company in order to “take along” its own shareholders and to bind them to society. Because investors expect their companies to be approachable in the digital world too.
According to various service providers who organize general meetings, there will be the possibility of offering a direct communication channel for shareholders during the coming season at least. Start-ups are also getting into position. Especially against the background that in the coming year the possibilities of contestation will be limited due to the continued validity of the Covid-19 Mitigation Act, companies should consider whether they should make use of this possibility. Because in professional circles there is already lively discussion about which adjustments could be made to the model of the virtual general meeting in times after the corona pandemic as a permanent solution for companies. One circumstance is already emerging: the current restrictions on shareholder rights will probably no longer be adopted in this form in the future.
Against this background, the coming AGM season would therefore offer the opportunity to rehearse without major risks for a possible practice after Covid-19 and to allow speeches or questions from shareholders during the Annual General Meeting. In this way, they could test the two-channel communication with their shareholders in the virtual general meeting with practically no risk in order to give them a little more sense of immediacy.
“Domiciliary rights” as in social networks
Companies need not have cause for exaggerated fear. There are numerous means that could be used to enable the meeting to run smoothly.
Some of these are already known and tested from previous face-to-face meetings and can be easily transferred to the virtual world: For example, the number of questions could be limited in a similar way to the limitation of speaking time in a physical general meeting. Questions that could not be answered in a face-to-face meeting, of course, do not have to be answered in a virtual meeting either. And if necessary, the chairman of the meeting – as with the closing of the list of speakers in the analogue world – could simply no longer allow further questions in the event of an excessively long virtual general meeting. In addition, it is already possible – albeit rarely practiced – to answer particularly relevant or expected questions from shareholders in advance on the company’s website and then not to allow these questions to be asked at the meeting.
It is also worth taking a look at the digital world outside of corporate law. Here it is possible, for example, in social media to delete offensive or criminally relevant posts and, if necessary, to block the authors. In a similar way, the chairman of the meeting could also exercise his virtual “domiciliary right” and not allow answers to amounts and questions from shareholders who abuse their right to ask questions and speak for insults or improper contributions. And if more or less representative amounts are selected, read out and then discussed in television programs by viewers via social media, a comparable approach at the annual general meeting would definitely lead to an improvement compared to the status quo – and, if used well, also to an image gain for the enterprise.
With such instruments in their luggage, companies could therefore take the opportunity next year to sustainably modernize the structures and processes of the traditional general meeting and bring it into the 21st century – and also to revitalize the general meeting culture. For Germany as a capital market, but for investors, this would be a good development.
Dr. Christof Alexander Schneider is a partner at ARQIS Attorneys at Law in Düsseldorf and an expert in corporate law.