General Meetings and challenges
Richard Roger, Head of the Issuer Services business line at Societe Generale Securities Services (SGSS), presents his perspective on the current challenges with regards to the organisation of General Meetings of Shareholders.
The role of SGSS within the French Associations in discussions about listed companies' General Meetings of Shareholders
At the end of 2018, the AFTI1 asked me to create and chair the “General Meeting Experts” working group, under the supervision of the AFTI Issuers Group, with the following responsibilities:
- Produce the Methodological Guide of General Meetings (published at the start of 2020) in collaboration with the French Market Associations;
- Define the procedure for implementing certain AMF2 recommendations relating to General Meetings, published in 2018 and 2017 as part of work carried out by the Retail Investors Consultative Commission;
- Identify how changes to sector structures such as Votacess can facilitate the implementation of the European Shareholder Rights Directive, in relation to General Meetings, for market players (custodians, centralising agents and issuers).
In 2019, the working group played a major role in drafting the Methodological Guide, starting from scratch to promote understanding and clarification of the process by precisely describing the preparation and holding of listed companies' General Meetings, as well as proposing areas for improvement.
SGSS services for listed companies’ General Meetings
SGSS supports its clients in preparing and holding General Meetings, covering all the stages required to organise the General Meeting, from communicating information to shareholders to processing proxy voting forms, admitting shareholders on the day of the General Meetings and calculating the results of votes. SGSS provides these services with its own teams and, since 2018, has ushered in a digital revolution with tactile voting tablets used both for shareholder attendance and voting. SGSS also provides show-of-hands voting services for smaller General Meetings.
SGSS holds significant market share, handling General Meetings for almost half of CAC 40 Issuers, as of January 1st, 2020.
Changes to General Meetings over the past 20 years
I have been providing assistance with General Meetings for 20 years. As such, 10 of my colleagues have participated in more than 150 General Meetings each, thus supporting our clients. In the 2000s, some General Meetings were more like American shows. Now they are often very structured, legal, formal and standardised. Admittance and voting are based on more advanced technologies. Internal and external security on the day of General Meetings now play a major role. We need to evolve to capture the attention of an internet-savvy audience with a short attention span.
Challenges to overcome in terms of securing General Meetings following the incidents of 2018
Restoring confidence, describing the functioning of the voting chain and participants’ roles, harmonising practices, identifying the difficulties of certain operating methods, and proposing areas for improvement – these all became essential, which is the whole point of the Methodological Guide and the ongoing consultation between professionals. It should also be noted that the legal and regulatory framework governing General Meetings of Shareholders or the account keeping - custodian activity is quite dense, not to mention the service provider contractual relations between an issuer and his centralising agent or between an investor and his custodian.
A review of the disadvantages of a Record Date (D-2) (reference date for determining shareholders’ positions in terms of voting rights) so close to General Meetings, as well as the advantages of drawing inspiration from foreign models which use a Record Date further away from the date of the General Meetings, remains essential in my opinion.
Therefore, when a voting instruction “crosses” a chain of several financial intermediaries, there is a risk of each link in the chain delaying its processing of voting instructions and transmitting its overall haul of votes to its custodian as late as possible, in order to subsequently reduce the updating of voting rights positions. In this scenario, the final link in the chain of intermediaries and the centralising agent may be faced with having to process a very large number of batches of instructions at the last minute when preparing for General Meetings, creating an operational bottleneck, with all the associated risks.
This phenomenon could worsen with the implementation of the European Shareholder Rights Directive (SRD II). This is because the number of voting instructions is set to increase due to a combination of several factors:
- Identification of final shareholders on voting instructions, making it possible to increase voting by non-residents;
- Even more active participation by asset managers and their clients.
2020: an unusual year with General Meetings held behind closed doors
In a difficult environment, our teams achieved a strong performance by maintaining an ongoing dialogue with corporate clients to prepare General Meetings in a new regulatory environment while managing operations remotely, without any incidents or mistakes. We also prepared for the regulatory changes in close collaboration with the financial authorities and corporate associations.
Challenges in the field of General Meetings, with the implementation of SRD II
All participants in the voting chain (custodians, centralising agent, central securities depository, proxy, etc.) must make considerable investments to meet the new requirements of the European directive and make it easier for shareholders to exercise voting rights, whether they are retail or institutional investors. Message standards and electronic instructions already partially exist among intermediaries to process stock-market orders or securities transactions. Even though institutional investors would certainly benefit from increasingly comprehensive services in relation to General Meetings, many areas still need to be developed.
The implementation of new message standards, the deployment of electronic messages between intermediaries, the development of voting via internet, the extension of individual voting to European shares, the obligation to inform the shareholders of General Meetings about the shares in their portfolios, the confirmation to investors that votes were correctly processed following General Meetings—these are all challenges which need to be overcome by corporates and participants in the voting chain over the coming months. Not to mention that the business model remains fairly complex since, as it stands, the voting chain receives no remuneration for processing individual shareholder votes.
New challenges for corporate/centralising agents during the 2021 campaign – Traditional or virtual General Meetings?
My preference would be for hybrid General Meetings, combining physical shareholder participation on the day of General Meetings with remote participation with other shareholders via the internet. We want to strengthen the dialogue with shareholders while preparing for the General Meetings in order to identify them and establish likely candidates for participating in General Meetings via the internet. Some issuers may therefore choose to organise interactive debates with those shareholders during the course of the General Meeting. Some issuers also want to organise remote voting in real time during General Meetings. A review will be necessary to determine whether the services offered cover legal and operational risks so as to avoid risks that are disproportionate to the challenges involved.
1 AFTI: Association Française des Professionnels des Titres (Association of French Securities Professionals)
2 AMF: Autorité des Marchés Financiers (French Financial Markets Authority)