Following the Covid-19 pandemic, the growing use of virtual platforms has opened greater opportunities for new modes of engagement with key stakeholders at a company’s annual general meeting (AGM) and beyond.
Regulators have also progressively laid out their expectations for companies to provide these new virtual tools and mechanisms, noting that there is a need for shareholders and investors employing the tools to exercise their rights, have their voices heard, and vote on important decisions, just as they are able to do in physical meetings. The Malaysian Code of Corporate Governance, last updated in 2021 amid the pandemic, for instance, signals for boards to ensure that virtual general meetings can “support meaningful engagement” among key stakeholders such as senior management leaders and shareholders.
At the same time, companies need to factor in new trends such as the rise in shareholder activism, where boards and individual directors are challenged at general meetings for the decisions they take. Bursa Malaysia, which has consistently advocated for the protection of shareholder rights, in the 4th Edition of its Corporate Governance Guide (“CG Guide 4th Edition”), specifically mentions this trend and highlights that boards need to ensure that the voice of shareholders and investors can be heard through voting at general meetings. PLCs are encouraged to proactively develop new mechanisms to assimilate shareholders’ interests into decision-making. This is as these stakeholders increasingly value transparency and want to play a stronger role in holding the board accountable for whether they respond to the risks and opportunities stemming from shifts in the business landscape, such as the increasing emphasis on environmental, social and governance (ESG) issues.
“Post-pandemic, active communication and engagements have taken centre stage. The communication between investors and their investee companies has changed significantly, especially in terms of frequency and level of participation,” said a former adviser and council member of the Institutional Investors Council Malaysia (IIC) and a prominent shareholder activist. The former adviser added that this can lead to better stewardship, with more active participation in the communication process by a company’s senior management.
Kasturi Nathan, executive director and head of board advisory services at KPMG Management & Risk Consulting, noted two clear themes have emerged post-pandemic in terms of shareholder engagement: better technology use and enhanced adoption of ESG principles in key decision-making processes.
Prior to the Covid-19 pandemic, in-person attendance at annual general meetings was the norm but virtual meetings have now become more commonplace. Image: Sime Darby Property
Making AGM virtual access meaningful and inclusive
In terms of technology, the conduct of fully virtual and hybrid general meetings and analyst sessions have become mainstream, said Nathan. “During times of uncertainty, when combined with open and transparent communication, leveraging online content allows companies to foster trust,” she said.
Bursa Malaysia’s CG Guide 4th Edition, in a pull-out guidance document on integrity in corporate reporting and meaningful relationships with stakeholders, encourages companies to embrace the use of technology to facilitate the communication of relevant information to shareholders. It specifically states that shareholders should be able to participate in general meetings without being present and encourages investments in electronic voting platforms available for both in-person and virtual attendees. These systems should allow for the verification of credentials to ensure safety, it recommends.
For general meetings conducted in the hybrid format, CG Guide 4th Edition also suggests that a smooth broadcast of meeting proceedings and mechanisms that allow for interactive participation by shareholders are essential. It says that questions posed by shareholders, whether they are attending in-person or via virtual access, should be made visible to all meeting participants during the meeting itself.
With virtual engagement platforms, it is essential that companies pay heed to the intricacies of the new setting, which may be characterised by higher shareholder participation rates, greater scrutiny, and extensive use of technological enablers, reminded Nathan.
“This requires companies to accord due attention to the entire gamut of AGM proceedings,” she said. For example, virtual AGM platforms must be optimised so that shareholders can be engaged “from the get-go” via an intuitive registration process.
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Do’s and don’ts of shareholder engagement
Dos
- Provide multiple engagement channels for communication.
- Ensure that information on the company website is adequate, informative, and updated.
- Conduct periodic and structured engagement sessions with stakeholders.
- Disclose the company’s stakeholders’ communication policy.
Don’ts
- Have the AGM as the only means of stakeholder engagement.
- Limit engagement sessions only to shareholders and exclude other stakeholders.
Source: Bursa Malaysia’s Corporate Governance Guide: Pull-out III: Guidance on integrity in corporate reporting and meaningful relationship with stakeholders
To facilitate seamless communication during the conduct of general meetings, live technical support should be provided. This can be in the form of dedicated telephone helplines or a live chat system set up to assist virtual attendees in navigating technical glitches. Information on the available channels need to be communicated in advance to the attendees.
To facilitate engagement, companies can also consider virtual meeting platforms that include interactive chat box functions. This could be as simple as a chatbox that enables participants to use emoticon features, which helps add a human touch to the proceeding. Communications personnel should be logged on to interact with and provide help for virtual participants too.
Devanesan Evanson, chief executive officer of the Minority Shareholders Watchdog Group, an independent research organisation focused on corporate governance affairs, also advises that companies carry out due diligence in ensuring the integrity of online platforms that serves to authenticate the registration details of shareholders participating virtually.
Proxy voting on the rise
Shareholders at general meetings are making their voices heard through proxy voting, especially on ESG-related topics. The world’s largest fund manager BlackRock, for instance, has said that it plans to continue advocating for the improvement of companies reporting their sustainability-related risks. In its 2023 Investment Stewardship report on global principles, BlackRock said that it would continue to maintain its proxy voting activity, informed by its “fiduciary responsibility” to act in its clients’ best interests.
In Malaysia, shareholders have also increasingly expressed their stance on material issues via proxy voting. Institutional investors such as the Employees Provident Fund (EPF), Kumpulan Wang Persaraan (Diperbadankan) (KWAP) and Permodalan Nasional Berhad (PNB) have actively participated at the general meetings of their investee companies. These organisations have also published their voting principles and decisions online.
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Case study: Incorporating ESG issues into ownership policies and practices
The United Nations’ Principles for Responsible Investment (UN PRI) lists out actions for incorporating ESG issues into investment practices. Principle 2 states that signatories will be active owners and incorporate ESG issues into their ownership policies and practices.
As one of the Malaysian signatories to the UN PRI, KWAP has incorporated corporate governance and sustainability considerations into its decision-making process via:
- Investment policy and investment guidelines
- KAP’s ESG Guidelines for Investment
- ESG-based research methodology
- Corporate Governance Principles and Voting Guidelines for Listed Equities
- ESG Guidelines for Fixed Income Investments
- KWAP’s ESG Tracking Methodology
- ESG Guidelines for Private Equity
Another Malaysian signatory to the UN PRI, EPF, has undertaken the following measures:
- Fomed a dedicated ESG team
- Developed sustainable investment policies which include:
- Policies on two priority sectors: climate change and workers’ well-being;
- Policies on six priority sectors: palm oil, oil and gas, mining, power generation, construction, and banking
- Developed a stewardship policy which will act as a guidance on how it should conduct its engagements and vote on ESG matters.
Sources: UN PRI, KWAP, EPF
For example, PNB has shown commitment towards being more transparent in its voting decisions by publishing them prior to general meetings to enable investee companies to engage with them on specific plans. IIC has also introduced recommended voting decisions under the section “Key Stewardship Spotlight” in its revised Malaysian Code for Institutional Investors Malaysia 2022, which highlights key corporate governance and sustainability matters.
The proxy voting process is becoming more transparent, especially when companies present plans and strategies during general meetings, said the former IIC adviser. The adviser has also seen more companies proactively seeking engagement with investors prior to their general meetings, resulting in a more robust discussion on key issues on company performance, dividend expectations and other resolutions that are then tabled.
“No critical issues raised had been ignored by companies and all questions raised by investors were addressed during the general meetings. Abstaining and/or voting against certain resolutions by institutional investors are basically due to stricter voting principles adopted and implemented.”
The Minority Shareholders Watch Group, on the other hand, cautions against companies taking advantage of the virtual AGM mechanism to leave important questions unanswered. It has previously raised the issue in its weekly publication, stating that boards can either filter out questions or leave some queries unanswered, and in instances like this, virtual participants usually lose out. It is recommended that the same principles for engagement be applied to virtual and in-person attendees and both sides are treated fairly.
Meanwhile, while institutional investors are often able to engage boards in private, retail shareholders primarily hear from the board only during general meetings or when announcements and media reports are made available, noted Bursa Malaysia in its Corporate Governance Guide pull-out. “It is therefore imperative that the board exercises equal treatment to all shareholders and ensures no selective disclosure to any particular group of its stakeholders,” the regulator said.
Proxy voting by shareholders has been increasingly used by investors to make their voices heard, especially on sustainability-related issues. Image: American Malaysian Chamber of Commerce
Growing ESG transparency and accountability
In addition to a growing number of Malaysian institutional investors becoming signatories to the United Nations’ Principles for Responsible Investing (UN PRI), the Malaysian Code for Institutional Investors also calls upon its signatories to incorporate ESG factors in their investment and ownership decisions.
The code, which was first formulated in 2014 and revised in September 2022, features a new principle on collaborative response towards corporate governance and sustainability issues. The revised code establishes that institutional investors should collaborate where appropriate to respond to corporate governance and sustainability concerns or risks.
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Case study: Seeking disclosure on ESG issues by investee companies
The UN PRI’s Principle 3 states that signatories will seek appropriate disclosure on ESG issues by the entities in which they invest.
KWAP
KWAP continuously engages investee companies and raises ESG issues where necessary. KWAP has a structured monitoring process on investee companies, whereby their performance is monitored via company announcements and news flows, ESG red flags, issues that are deliberated at the companies’ AGM/EGMs and other concerns. In terms of obtaining ESG disclosures from their investee companies, KWAP conducts engagements with their investee companies via various platforms.
EPF
EPF, via its priority issue policies, requires companies to disclose climate change and workers’ wellbeing information in accordance with global reporting frameworks, such as the Taskforce on Climate-Related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI). For measurement of ESG performance, EPF requires companies to disclose process-based metrics for material sub-issues identified, such as Scope 1 & 2 greenhouse gas emissions.
PNB
Despite not being a UN PRI signatory, PNB has been actively incorporating ESG issues in company engagements and voting policies. Corporate governance has always been one of its key priorities and PNB’s governance policies focus on instilling a strong and effective board in investee companies, which is critical in ensuring that long-term shareholder value is delivered. In line with PNB’s Sustainability Framework, incorporating environmental and social issues in their engagements have been guided in terms of materiality. When the need arises, critical issues are escalated to investee companies through various touch points in line with its Escalation Matrix, a framework which outlines PNB’s approach to investee companies, to ensure they play their part as an active long-term investor.
Sources: UN PRI, KWAP, EPF, PNB
Conclusion
In summary, annual general meetings are often the main avenue for shareholders to dialogue and interact with directors, and the success of the meetings often depends on the chairman and the Board’s understanding of how to conduct the proceedings. With the advent of virtual or hybrid AGMs, similar principles of fairness, transparency and meaningful engagement need to apply, and increasingly, technology and tools are at a company’s disposal to enhance and improve the experience. Companies also need to continue to stay alert to concerns from virtual AGM participants and ensure that such channels are not employed at the expense of watering down shareholder rights or board accountability.
This article was first published on Bursa Sustain, Bursa Malaysia’s one-stop knowledge hub that promotes and supports development in sustainability, corporate governance and responsible investment among public-listed companies.
