21 Oct Shareholder activists highlight online-only AGM loophole for IPOs

Source: Financial Review

By: John Kehoe

Investors are warning the federal government’s move to allow online-only annual shareholder meetings will be exploited by new companies floating on the stock market, which may never have to face shareholders in person.

Treasurer Josh Frydenberg this week unveiled legislation to permanently extend COVID-19 emergency measures to enable hybrid annual general meetings – a mix between in-person and online gatherings of company directors and shareholders.

If expressly permitted by an entity’s constitution, AGMs will be able to be exclusively held online via video link, provided that shareholders are given reasonable opportunity to participate.

Some 75 per cent of shareholders must agree to a change to a company’s constitution to hold a virtual-only meeting.

Activist investor Sandon Capital founder Gabriel Radzyminski said while that was a hurdle for existing companies, new companies coming to market were likely to be advised by lawyers and investment bankers to insert virtual-only AGMs into their original constitutions.

“Investors considering IPOs [initial public offerings] should be asking to see the constitution as part of pre-IPO due diligence to know what sort of company they will be voting in,” Mr Radzyminski said.

Mr Radzyminski said the government’s move was a “retrograde step” against shareholder rights.

“I question if this government truly understands that investors are the owners and the directors are only the agents of the company’s owners,” Mr Radzyminski said.

“It’s not just wealthy owners who punt the market to make a fortune, it’s everyday Australians through their superannuation who are losing rights.”

Dean Paatsch, of proxy advisory service Ownership Matters, said new companies could avoid the usual shareholder scrutiny applied on the floor of physical AGMs via online-only meetings.

“We will see over the next 10 to 15 years companies that come to market going online-only, but hopefully there will be standards to allow appropriate questioning and scrutiny,” he said.

“There is something lost in translation if there is not a physical meeting because online-only formats often require questions to be submitted in advance and can be edited.”

“Hybrid meetings are the best.”

At least seven listed companies have attempted to change their constitution to enable online-only AGMs this year, but five companies have been rejected by shareholders including Brambles and Qantas. Some companies, such as Bendigo and Adelaide Bank, have withdrawn the proposals before a formal vote.

Flight Centre on Wednesday managed to woo 80 per cent of shareholder votes in favour of making the change to allow virtual-only meetings, clearing the hurdle by 5 per cent of all votes cast. Almost 87 million shares were cast in the vote, less than half of the 199.5 million shares on issue.

Pointsbet Holdings also succeeded, but has said its intention was to hold hybrid meetings, not online-only gatherings.

One market source said highlighting the potential IPO loophole now would put pressure on new companies to avoid online-only AGMs in their maiden constitutions.

The Australian Institute of Company Directors has strongly endorsed the government’s reforms, which Mr Frydenberg has said will reduce red tape and embraces new technology-enabled interactions between shareholders and company directors.

A corporate adviser said directors had experienced a challenging time, with ESG rules and COVID-19 red tape.

Other shareholder advocates have raised concerns about shifting away from physical AGMs, including the Australian Shareholders’ Association, the Australian Council of Superannuation Investors and fund manager Geoff Wilson.