Participation by shareholders in virtual meetings and electronic voting

With time and geographical constraints, and now Covid-19, driving change in the voting process, companies are looking to hold virtual meetings to implement a more efficient method to obtain shareholder votes and use the concept of 'e-voting', whereby members or shareholders can vote on resolutions via an electronic system.

This article maps out the key elements of e-voting including the practicalities and risks, the legal basis on which e-voting is permitted and the process by which the concept can be utilised by a range of body corporates, including public, private and quoted companies.

Towards the end of this article you will also find a glossary of key terms.

What is the legal basis on which e-voting is permitted?

Section 360A of the Companies Act 2006 (the Act) as implemented by The Companies (Shareholders' Rights) Regulations 2009 (the SRR 2009) permits the use of electronic means for the purpose of enabling members to participate in a general meeting, subject to the requirement for traded companies that it is necessary to ensure the identification of those taking part and the security of the electronic communication. The Act states that a company can require reasonable evidence of the entitlement of any person who is not a member to participate in the general meeting.

If the company is not a traded company, the shareholders are not subject to the above requirements.

Section 360A also states that a meeting can be held in such a way that persons who are not present together at the same place may by electronic means attend and speak at vote at such meeting, thereby permitting the process of e-voting.

What are the advantages of using e-voting?

In short, e-voting provides ease of use for all shareholders. The electronic platforms are accessed via a URL or app, and then the shareholder is usually provided with a meeting code and login ID and sets a password. They then login when required to vote and cast their vote from wherever is convenient for them.

There are several companies that use the same electronic platform, thus providing quick access to shareholdings in several companies within minutes.

The paperless method of casting a vote means that the possibility of postal forms getting lost in transit is avoided (together with a reduction in carbon footprint) and clear instructions are provided on-screen preventing invalid votes by virtue of forms being filled in incorrectly.

The timing system within the electronic platform means that the shareholder is given time to vote until the end of the voting cycle and, where permitted, can also log back in to change their vote prior to the voting period closing.

The online voting system is secure and sites encrypt the details of instruction before sending them over the internet to the company. A legitimate online voting platform will begin with 'https' in the address bar rather than 'http' to demonstrate it is a secure site.

How do I send notice of a meeting electronically and what should it include?

Before sending any notice electronically, the recipient of such notice i.e. the shareholder, must have indicated to the company his willingness to receive the notice in the form and manner used. Indication must state the address to be used and must be accompanied by such other information as the person requires for the making of the transmission (s.1259 of the Act). This could include the shareholder's name, telephone number and an alternative or backup email address.

Should a member of a company hold shares on behalf of another person, the member may nominate that person to enjoy information rights, including the right to receive a copy of all communications that the company sends to its members generally (such as notice of a general meeting) (s.146 of the Act). The member may also therefore provide to the company details of the indirect investor to receive electronic communications.

Documents or information sent in electronic form (by e-mail, fax or in the post via USB or disk) must be sent in a way that the recipient can read the information with the naked eye and retain a copy of such information.

Where a company provides their electronic address in a notice calling a general meeting, it is deemed that any information relating to proceedings can be returned to such stated electronic address. This includes documents relating to proxies, such as the appointment of a proxy in relation to a meeting, any document necessary to show the validity of the appointment of a proxy and notice of the termination of the authority of a proxy (s.333 of the Act).

The notice when sent out should make it clear that voting will be done on a poll and should provide clear instructions on how to access, speak and vote at the meeting. There should also be a contact number for the technology provider managing the electronic voting system should the shareholders require assistance before or at the meeting.

How many days' notice do I need to give?

Private Company

The usual notice provisions according to s.307 of the Act apply, in that a general meeting of a private company must be called by notice of at least 14 days, unless a longer period is stipulated by the company's articles of association.

If shorter notice is agreed by the members in majority (90% or such higher percentage up to 95% in the company's articles) then a general meeting may be called by shorter notice.

Public Company

A general meeting must be called by notice of at least 21 days for an AGM, and in any other case, at least 14 days.

If shorter notice is agreed by the members in majority (95%) then a general meeting may be called by shorter notice.

Traded Company

A general meeting must be called by notice of at least 21 days, and in any other case a meeting must also have at least 21 days' notice. However general meetings can be held on at least 14 days' notice if the meeting is not an AGM, the company allows shareholders to vote electronically and a special resolution reducing the notice period has been passed.

What is a virtual general meeting?

A virtual general meeting is where shareholder meetings are held without a physical meeting location. This can be done using conference call facilities or through a web browser, or mobile app technology. It is also possible to use a combination, for example using a conference call for shareholders to ask questions, then using a web browser or app to enable the shareholders can follow a presentation and then vote.

The Shareholders Rights Directive (2007/36/EC) has been adopted in the UK in a manner that permits a company to hold a virtual meeting without also having a physical meeting.

Checks and Preparations before holding a virtual meeting

The first step is to ensure that the company's articles of association have no implication that general meetings must be held in a physical place, such as the notice provisions stating a time, date and place of the meeting (therefore implying that a physical location is required). The articles should also give the chairman discretion to adjourn the meeting if there are any technical issues. If even one shareholder has technical issues then the chairman wouldn't be able to put a resolution to all shareholders at the time to adjourn the meeting. Practically this would require amending the current articles and then holding the following general meeting or AGM as a virtual meeting.

It is advisable to have a run through of the virtual meeting with the board of directors and/or chairman to understand how the process shall work, ensure wherever possible that the technology runs without error including checking that the chairman of the meeting knows whoever is speaking (there is no requirement for all participants to be able to see each other during the meeting) and that all participants could speak and vote. The usual requirements however will still apply with regard to quorum, notice periods, displaying documents where required and counting and declaring the results of the vote. The directors should be at the general meeting and be available to answer any questions from shareholders.

It is also advisable to have a 'test run' of the software for the shareholders, providing them with separate login details (as required) to test their audio and conferencing functionalities to ensure they are not inhibited by technology during the time and date of the actual meeting.

Another issue to be aware of is that some shareholders may not have internet access at the time of the meeting. Such shareholders, dependent on the technology used, can dial into the meeting by phone to use the audio-only function, and can still vote at the virtual meeting but would have to complete a proxy form and submit it to the company in accordance with its deadline prior to the meeting in order to do so.

Is it possible to hold a meeting that's both virtual and physical in a hybrid format?

Yes. Notice of the meeting would have to include the physical location in which the meeting is being held, and can be attended by directors and/or shareholders, together with details of the electronic system being used for those utilising the virtual element of the meeting such as video conferencing facilities. The articles of the company would also have to reflect that a physical place is permissible for meetings.

Marks & Spencer provide an example of a well-known company using the hybrid format for its AGM, with members attending in person and electronically via a website or phone access using a designated app. Marks & Spencer used their annual report to set out the process for electronic voting at its AGM, including picture diagrams of how to use the mobile app and a step-by-step process of how electronic voting works generally. We noted that M&S used Equiniti, one of the market leaders, and its 'Sharevote' system to allow shareholders to make electronic appointments (and compliments paper-based proxy voting) but also used Lumi for their web-based and mobile app voting systems.

Marks & Spencer's articles of association had some useful wording that can be referenced in order to allow the company to participate in electronic voting. There were defined terms such as 'electronic general meeting', 'electronic platform', electronic form' and 'electronic means', with articles that included information regarding 'Convening general meetings' (art 47), 'electronic general meetings' (art 48), and 'Receipt of proxies' (art 70 b and f) containing specific wording on using the electronic voting process.

Are there existing models being used for electronic voting? If so, who is using them?

There are a number of models being used around the world for e-voting purposes but in the UK the notable market leader is Equiniti. Equiniti provide a system known as 'Sharevote', a web-based platform which complements paper based proxy voting and allows shareholders to make electronic appointments. There is also the 'VoteNow' system that can be used in physical meetings and uses electronic voting handsets to record the votes, tailored to each shareholder and the number of shares held. Not only does it ease the voting process but also provides a full electronic audit trail of attendance and voting.

IHG (Intercontinental Hotels Group plc) used Equiniti's Sharevote, together with a number of other household names such as Debenhams, Thomas Cook Group and Marston's, the pub and hotel operator.

Aside from the possibility of technical issues, are there any other risks associated with electronic voting?

Electronic voting can raise other issues pertaining to anonymity, incorrect records and simply that whoever is voting is not who they say they are. If shareholders were to vote using paper forms, these paper records provide verification that votes were counted and keep those votes anonymous. However electronic votes leave a form of audit trail by being logged online making the process arguably less anonymous.

The concept of moving voting in a physical meeting location to voting at home or on the go also raises the risk that a third party who isn't verified to vote, votes on a shareholder's behalf. Although in practice this is unlikely, there is capacity for coercion and it is important to note that electronic voting poses a higher risk in this regard than the traditional voting method.

We recommend that if a meeting is held virtually, that the chairman requests that all participants, insofar as they are able, turn on their video function, so that the board can be assured that those who have logged into a meeting virtually or are attending to vote electronically are the correct people eligible to attend.

If electronic voting is permissible, are electronic signatures considered valid and enforceable?

Alongside the electronic voting process is the option for shareholders to cast their vote via the written resolution procedure, either by hand or by electronic signature.

Leading counsel has advised that minutes of a directors' meeting and members' written resolutions signed with an electronic signature will be valid if they are sent or supplied in hard copy form, or sent or supplied in electronic form, provided that the identity of the sender is confirmed in a manner specified by the company or (where no such manner has been specified by the company) if the communication contains or is accompanied by a statement of the identity of the sender and the company has no reason to doubt the truth of that statement.

Such validity of electronic signatures is only apparent however in documents that are not required to be executed as deeds, which have more stringent formality requirements than a simple document. For a deed to be valid it may need to be signed either by two directors, or by one director and the company secretary, or by a director in the presence of a witness. It has been advised that witnessing and attestation should be retained for electronic documents executed as deeds (where a witness is required) and that it is best practice that a witness is physically present in the same room to witness the electronic signature of the authorised signatory, rather than witnessing via video link, as this minimises any evidentiary risk as to whether the person genuinely witnessed the electronic signature.

Covid-19 and its impact on AGMs

Over the past several months, given the effects of lockdown and general impact on companies, physical meetings have not been possible. The results of a poll conducted in September 2020 on a leading networking platform noted that 81% of those voted had held closed AGMs, and both virtual and hybrid AGMs have become increasingly popular during the pandemic. Conducting an AGM 'behind closed doors' uses a method whereby the shareholders cannot attend the meeting physically or virtually but must submit a proxy form to vote, or a company can choose to use an online voting platform or mobile app.

On 26 June 2020 the Corporate Insolvency and Governance Act 2020 came into effect. The Act was enacted to ensure that companies are provided with the temporary but necessary flexibility as to how and when they hold their AGMs, without taking into consideration the company's articles of association and usual requirements for virtual meetings as outlined above.

The Act allows companies to hold fully virtual or hybrid meetings, and that companies can satisfy their quorum requirements by having attendance at the meeting using electronic means. Importantly, shareholders do not have an inherent right to attend the meeting in person, and although retain their voting rights on resolutions put to a meeting, they don't have a right to vote using a particular method, as any votes will be permitted to be casted by electronic, or any other means.

Although the use of virtual and hybrid meetings has been accelerated due to Covid-19, it is important that companies ensure that there is suitable engagement with shareholders in advance of, during and after the meeting. Feedback suggests that these new methods of conducting meetings have made them more inclusive for shareholders by providing greater flexibility to allow people to attend virtually, but technological issues and insufficient company policies and practices may render shareholder participation at a disadvantage until such methods have been tried and tested and become the 'new normal'.

Please do contact us if you would like further information and advice on preparing for and holding a virtual or hybrid company meeting.

 

Glossary of Terms

AIM Company

A company with a class of securities admitted to trading on AIM (securities market not bound by Listing Rules). It is not a 'quoted company'.

eIDAS

Regulation (EU) No 910/2014 of the European Parliament on electronic identification and trust services for electronic transactions in the internal market, which deals with the validity and enforceability of electronic signatures.

Equiniti

Provider of technology, administration and processing services including Sharevote and VoteNow.

Proxy

Someone who attends a general meeting and votes in place of a member of the company. Every member of a company has a statutory right to appoint a proxy.

Shareholders Rights Directive (2007/36/EC)

An EU Directive that permits virtual meetings, aims to strengthen the position of shareholders and ensure that decisions are made for the long-term stability of a company.

ShareVote

A web-based platform which complements paper based proxy voting and allows shareholders to make electronic appointments when it is not possible to attend a company meeting in person.

Traded Company

A company where shares carry rights to vote at general meetings and are admitted to trading on a regulated market in the EEA state by or with consent of the company.

VoteNow

A service that uses electronic voting handsets to record shareholders' votes, weighting each vote according to the number of shares held and can instantly display resolution results. It's key USP is to provide a personalised solution to the traditional method of a poll vote.

Written Resolution

A resolution, which may be ordinary or special, is a resolution that is passed in writing, rather than at a company meeting where each shareholder casts their vote(s) in person or by proxy.

Quoted Company

A company whose equity share capital has been included in the Official List in accordance with FSMA, or is officially listed in an EEA state, or is admitted to dealing on either the NY Stock Exchange or Nasdaq.