CMA warns of unequal power dynamics during virtual AGMs

CMA is pushing for reforms to protect shareholder participation in virtual meetings. [iStockphoto] The Capital Markets Authority (CMA) is now pushing for reforms to protect shareholder participation in virtual meetings to enable them to hold companies accountable both online and offline. The CMA feels jittery that the CMA virtual AGMs could lead to unequal power dynamics in which some shareholders are left out in the digital cold. The COVID-19 pandemic sparked a revolution in how Kenyan companies hold their annual general meetings (AGMs). From boardrooms packed with shareholders to screens filled with avatars, virtual AGMs have become the norm. However, analysts have for long feared that the virtual AGMs risk excluding participants who might be unfamiliar with the required technology, such as older retail shareholders. Yet the AGM is an essential forum to shine a light on company decision-making and to ensure shareholders can hold executives to account. And now the capital markets regulator feels the online format might limit spontaneous debates and informal questions compared to in-person gatherings. Consequently, the CMA is warning companies to enhance access and equity of shareholders to virtual AGMs so as not to compromise shareholder activism and corporate governance. "Going forward, the Authority calls on issuers to ensure that the virtual AGMs mirror physical AGMs to the extent possible by allowing shareholders enough time to ask questions and seek clarifications on the company's performance or any relevant matters," said the CMA. "Issuers are strongly encouraged to make available, on their websites, a comprehensive record of questions posed by shareholders during the AGMs along with the corresponding responses provided by the directors/management." The CMA also wants disclosures regarding financial and non-financial reports, policies, and procedures published on individual websites to ensure "transparent disclosures to shareholders." It warns companies must ensure their annual reports and accounts are made available to shareholders through multiple communication channels including uploading on their respective websites and social media channels when issuing AGM Notices to allow sufficient time for scrutiny. The CMA also says companies should ensure minority shareholders are protected from any adverse actions by the controlling shareholders and have effective means of redress. "Issuers (should) provide information that is regarded to contribute to appropriate decision-making by shareholders at the general meetings of shareholders, through the improvement of the contents of convocation notices, reference materials, and business reports, as well as timely disclosure of financial results." Analysts say virtual AGMs risk excluding participants who might be unfamiliar with the required technology, such as older retail shareholders. The CMA has been under scrutiny on issuance of clear guidance on how questions are raised and answered at digital AGMs, to ensure that AGMs maintain their usual standards of transparency. For example, some shareholders and analysts caution that if attendees can only submit questions in advance and cannot 'raise their hand' and ask them in real-time, this could allow companies to cherry-pick which questions they answer. This they say could inhibit the extent to which shareholders can hold company boards to account, hampering their ability to act as long-term stewards of their assets. Some shareholders have also said that while virtual AGMs were of course a sensible solution to limiting the spread of Covid-19, companies should not be able to move their annual meetings online indefinitely. Not only could this exclude the older generation from attending, but it could hamper the democratic process and conveniently offer boards a way to evade trickier questions, some concerned shareholders have said. A majority of listed Kenyan firms have embraced virtual meetings to also cut down on travel and venue expenses, making them no frills and significantly cheaper for companies to host, The Standard spot-check shows.

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