As more companies convene virtual shareholders’ meetings post-pandemic, they need to follow certain procedures to avoid falling foul of the Companies Act.
The COVID-19 pandemic, the resulting lockdown, and social distancing requirements changed many aspects of life. One of those was companies’ meetings.
The Companies Act, 2008 (the Act) requires all public companies to convene an annual general meeting (AGM)1, and various entities are also required to do so by their relevant constitutions. At the height of the pandemic, electronic participation in meetings (including meetings of shareholders with a large number of attendees) became widespread practice and, in many instances, they included a facilitator.
Convening a virtual AGM may necessitate the use of a facilitator to:
• receive questions from the individual shareholders;
• convey communication to the board or other AGM participants; and
• switch the microphones on and off to control who speaks and when.
In this article, we will discuss the legal considerations relating to virtual meetings of shareholders and their reasonable and effective participation.
Section 63(2)(a) of the Act states that:
“unless the MOI states otherwise, a company may provide for a shareholders’ meeting to be conducted entirely by electronic communication, as long as the electronic communication employed ordinarily enables all persons participating in that meeting to communicate concurrently with each other without an intermediary, and to participate reasonably effectively in the meeting.”
The Act is flexible and recognises that companies may conduct a virtual AGM, if it is not prohibited by the MOI. Some commentators have suggested that electronic participation and voting encourages shareholders to play a more active role in the company’s affairs and would promote shareholder activism.2
Although virtual AGMs are permitted and their convening must comply with the requirements of the Act,3 s63(2)(a) of the Act is yet to be interpreted by the courts. The term ‘intermediary’ is not defined in the Act, but the ordinary meaning of intermediary (mediator or agent, for example)4 would suggest that the Act prohibits any limitation on the rights of shareholders to communicate effectively for themselves or by proxies at a shareholders’ meeting.
We believe that reasonable and effective participation in a virtual AGM (and/or any other meeting of shareholders by electronic means) should (without creating an exhaustive list):
• ensure that the participants are free to speak and pose questions in real time;
• ensure that participants can communicate without excessive moderation and may be allowed to communicate verbally or in writing;
• afford shareholders the same rights as in an in-person AGM; and
• where there is a facilitator, the facilitator must not assume controlling power over the shareholders’ communication and limit their communication as if it were acting as an intermediary (which would contravene s63(2) of the Act).
The King IV Codes state that the board of directors (the Board) should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.5 In addition:
• the Board should oversee that the company encourages proactive engagement with shareholders, including at the AGM of the company;
• all directors should be available at the AGM to respond to shareholders’ queries on how the Board executed its governance duties; and
• the Board should ensure that shareholders are equitably treated, and that the interests of minority shareholders are adequately protected.6
It is important to preserve shareholders’ rights in virtual AGMs, and to allow them to hold the Board to account in a reasonable and effective manner. Shareholders must be enabled to participate to the fullest extent at a virtual AGM.
The increase in electronic communication at shareholders’ meetings has become common practice following the pandemic. Consequently, now more than ever, companies are required to ensure that such electronic means adhere to the Act. To improve good corporate governance and compliance with the Act, a company should ensure that shareholders’ rights to participate in a reasonable and effective manner are upheld at a virtual AGM. Also, care should be taken to prevent any facilitator from acting as an intermediary at a virtual AGM, by limiting the participation of the shareholders. The electronic platform used must be accessible, reliable, secure and allow all participants to hear each other in real time. This platform should allow the shareholders to ask questions at any time, and to vote freely and effectively.
1 Section 61(10) of the Act.
2 Cassim et al Contemporary Companies Act (2012) at 379.
3 Sections 62(3) and 63(3) of the Act.
4 As per the Merriam-Webster dictionary definition.
5 Principle 16 of King Code IV.
6 Recommended practices 6, 7 and 9 of the King Code IV.
Ziningi Hlophe is a Partner, Tebogo Moloko a Senior Associate and Lwazi Mthembu an Associate | Corporate at Webber Wentzel.
This article first appeared in DealMakers, SA’s quarterly M&A publication
DealMakers is SA’s M&A publication
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