“An AGM is not a zoom event!” – there is no shortage of bold statements when it comes to the growing criticism of the still-widespread practice holding general meetings online. The legal framework for this has been set out in the political sphere. On 7 July 2022, a bill from the traffic light coalition was passed by a broad parliamentary majority. Section 118a of the German Stock Corporation Act (Aktiengesetz) allows stock corporations to hold general meetings in the future as a face-to-face event, as a hybrid meeting or as a purely virtual event.
Although distance rules and mask requirements have been abolished, a number of companies – including a large number of blue chips – have stuck to the virtual format in this year’s AGM season. Shareholder rights advocates are criticising the fact that this practice disadvantages private investors in particular. “As a shareholder, you are also an entrepreneur. Not being able to personally inspect the trustee acting for the shareholders, i.e. the Executive Board of the Company, at an Annual General Meeting, is one drawback. Institutional investors have the opportunity to talk to management at investor conferences. This option is not open to the private shareholder. And the personalities on the board can prove a decisive investment criterion,” says Daniel Bauer, Chairman of the Board of Directors of the Association for the Protection of Investors (SdK). Individual IR experts complain that the refusal of board members to be held to account face-to-face at events could damage the credibility of the IR work of these companies.
One of the biggest criticisms of virtual AGMs is the fact that shareholders can only submit their questions in advance in written form and exclusively by means of video communication . In addition, the only questions that need to be answered at a virtual general meeting are ones following up on questions which have already been asked in advance, and questions about new information that has come to light. The scope of the comments can be limited to a certain number of characters or minutes. The precise arrangements are left to the company. In this context, statements can also be given in written or video format.
The organisers themselves have some challenges to overcome. Anonymity is one of them. The lack of the social component which is provided by face-to-face interactions between shareholders can have a negative impact on support – especially when the company is entering a new phase of its development or going through a difficult time. But an online general meeting also renders organisation more complex. Jörg Nickel, a lawyer and tax consultant at Ebner Stolz, an audit and consulting company which specialises in medium-sized companies, sees the greatest difficulty in ensuring that the right to ask questions is enforced in the interests of all parties involved. In the case of virtual AGMs, the submission of opinions, but also the publication of the Executive Board’s spoken report, generally take place in the period prior to the meeting. This can create problems if, due to a very high number of participants, more questions arise, and the company has to answer all of these at least by the day before the meeting.
Moreover, questions can be asked during the meeting itself, which can further increase the workload. This requires companies to be able to react to such queries spontaneously and usually under pressure; to interpret them correctly and to decide whether the question has been answered or not. In order to be prepared, companies will increasingly set up Q&A sheets in advance, i.e. pre-prepared question and answer lists. In order to also be able to meet the time limit of four to six hours, Nickel continued, the organisers need to be aware of how they set limits to questions and whether they will also put a time limit on speeches. “However, these aspects make the it quicker and easier to violate the right to information,” warns the legal expert.
Technical problems can prove another legal pitfall if shareholders want to file appeals or objections at the click of a mouse, but cannot exercise them because their Internet connection does not work. According to the statutory regulations, challenges arising from a technical malfunction can only be raised if the company is at fault either intentionally or through gross negligence. That being said, a precedent for applying this rule in practice has yet to be set, and so it remains to be seen how such a case would work out.