D.F. King - General Meeting Season Review – Australia 2021

Companies held more accountable by shareholders despite AGM participation levels falling

• Average AGM attendance rates in the UK market dipped in 2021, falling to 73.9% from 75.9% in 2020
• ESG priorities gain momentum among shareholders, with 11 climate items raised compared to three the previous year
• Unprecedented scrutiny for executive pay outcomes

Last year’s AGM season underscored the accelerated transformation from a shareholder-to-stakeholder model. Companies were increasingly scrutinised in connection with their boards’ ability to become more aligned, more inclusive, and more accountable to shareholders and stakeholders, according to new research from D.F. King Ltd, Orient Capital’s specialist proxy solicitation and shareholder engagement team.

Although boards are being held to account more than ever on impacts to environment and society, shareholders are expecting this as well as, not instead of, profitability and long term strategy. As a result, Boards are facing mounting pressure to meet these growing shareholder expectations.

ESG takes centre stage

The 2021 AGM season heralded the primacy of ESG in almost every aspect of shareholder relations with listed companies. Shareholders’ appetite for companies’ response around environmental challenges, particularly those linked to climate change, have rekindled with a vengeance following slower progress at the heart of the pandemic disruption.

D.F. King’s AGM review identified 11 items related to a form of climate change commitment. This compared to only three items of a similar nature the previous year.

ESG was also addressed in more indirect ways such as quantifiable non-financial criteria in variable remuneration directly linked to a company’s ESG strategy and board level expertise on ESG topics such as climate, carbon emissions and biodiversity. Investors actively used the AGMs to foster increased forms of diversity in the boardroom but also to the wider company, and progressive effort from investors helped companies become overall more inclusive beyond gender diversity.

AGM participation drops while meeting format goes hybrid

For a second year running, the debate continued around the ideal format in which to conduct AGMs moving forward, with many companies allowing virtual participation. Last year, this approach appeared to be a temporary solution to stabilise shareholder participation rates. This year, in 2021, this evolved to a more hybrid archetype, where AGMs are now configured to allow physical and virtual participation.

While virtual and hybrid solutions were initially heralded as a way of unlocking additional shareholder participation, participation rates fell below pre-pandemic levels. Average attendance rates in the UK market dipped in 2021, falling below levels from 2019 (73.9% vs 74.3%). In 2020, average AGM attendance rose to 75.9%.

Share the gain, share the pain

Executive compensation remained at the forefront of 2021’s heated AGM topics with average approval for remuneration policy (-2.86%) and remuneration reports (-2.68%) suffering the largest reductions.

Investors’ mantra to “share the gain, share the pain” was expected to incorporate wider stakeholders and unprecedented scrutiny was visible in executive pay outcomes. Particular attention was paid to remuneration reports if companies had benefited from government aid, furlough schemes, changes to dividend policy and the share price, and other wider ESG considerations.

Several companies discovered that a positive stakeholder experience during the pandemic did not guarantee acceptance. Companies are now expected to explain with clarity and transparency why remuneration decisions were equitable, aligned and appropriate in relation to shareholder and wider stakeholder interests now and into the future.

Alison Owers, CEO, Orient Capital and Director at D.F. King, comments:

"The pace of change at AGMs over the past two years has been rapid, extensive and multi-faceted. Boards are now faced with increased scrutiny from shareholders to focus on value creation and profitability, as well as their wider impact on environment and society. The age of shareholder activism seems well and truly upon us. The global pandemic has been a catalyst in accelerating this trend, and boards must now walk the tightrope of balancing company values with business performance.Companies that progress further in demonstrating how their board is working to create a more aligned, inclusive and accountable company while creating sustainable value to shareholders and stakeholders should thrive."