Capital Market Communications

Due to the Corona pandemic, most of this year's annual general meetings (AGMs) were held virtually. Has the traditional AGM thus come to an end? Not yet. Because the deficits of a purely virtual AGM are too great so far. However, improvements are possible.

The basis for virtual AGMs is the German government's Emergency Act of March 2020. It extended the deadline for holding an AGM from the end of August to the end of December, while at the same time offering the possibility of holding an AGM only virtually for the first time. The law further­more created the possibility of distributing part of the dividend as an advance dividend without the approval of the AGM.

Potential at hand, but still room for improvements

With the introduction of this new option, the classic AGM has certainly not come to an end. Because the deficits of a purely virtual AGM are too great so far: These include the limited opportunities for share­holders to ask questions and object during an AGM. This problem should be solvable though, because digital tools are ideal for a functioning interaction between the Supervisory and Management Boards as well as all shareholders. The fact that it has not truly worked so far, was thus less due to the basic availability of the technology rather than to the relatively short preparation time for legally compliant implementations. However, improvements are possible e.g. with advanced virtual discussion rooms or chat functions for enquiries.

On the other hand, positive conclusions can also be drawn on the basis of conducted AGMs: The classic AGM in Germany, which has experienced relatively few changes since the reform of stock corporation law in 1965 (!), is out-dated and is associated with high costs. Sometimes exhaustingly long interventions by some share­holders resulted in a very long average duration of meetings by international standards, which was also increasingly used by "predatory shareholders" to obtain special rights for themselves by means of legal action based on alleged or actual formal errors.

Thanks to the virtual AGM, many international investors and small retail investors were able to attend an AGM for the first time. Given the fact that on average twice as many investors in DAX companies are of foreign origin, this is quite a remarkable achievement.

A breath of fresh air could ensure permanent digitalisation

The German government should there­fore create the possi­bility to carry out the just temporarily allowed virtual AGM on a permanent basis and even allow a complete waiver of the attendance at AGMs. There are cost arguments in favour of this, as well. Such a move will undoubtedly require that the opportu­nities for interaction with the Supervisory and Management Board are significantly improved and that sufficient speaking rights are created for the share­holders. The companies themselves can use­fully supplement the AGM by setting up internet discussion forums. Likewise, a close involvement of institutional investors should not be a problem. They are usually the ones who, as "activist" investors, get to the root of the problems and call for corrections to the Supervisory and Management Board.

Volker Heck and Daniela Münster have advised companies during the past months regarding the implementation of their digital AGMs and will be happy to answer any questions you may have on this topic.