Below is an excerpt from ISS’ recently released 2020 Pan-European Proxy Season Preview. The full report is available to institutional subscribers by logging into ISS Link then selecting the Governance Exchange and its Report Center tab and to corporate subscribers by logging into Governance Analytics then selecting the Governance Exchange and the Report Center tab.
At the beginning of the year, the main theme of the 2020 proxy season in most European markets was expected to focus on the transposition of the revised Shareholder Rights Directive (SRD II) into the national laws of EU member states, other regulatory developments, and anticipated shareholder activism. However, the unprecedented impact of the global coronavirus (COVID-19) pandemic is undoubtedly the biggest focus of 2020 and represents significant challenges to companies and their shareholders because of the many uncertainties that it has generated.
The COVID-19 pandemic is presenting unprecedented challenges not only to individual health, communities, jobs, businesses and economies, but also specifically to public companies and the shareholders that invest in them. The threat to human health, and governmental actions to deal with the pandemic, have resulted in many businesses in Europe and around the world having to temporarily shut down or severely limit their business operations, for currently unpredictable time periods. And some entire sectors face serious and potentially long-term uncertainty. In many markets, filings of financial statements and other critical reports have been delayed in recognition of the severity of the difficulties and uncertainties facing companies and the economies in which they operate. Health and safety concerns have also led to many companies either postponing their 2020 annual meetings or altering their meeting formats to limit or entirely remove physical participation
Given the rapidly evolving nature of the pandemic and the global response, it is far too early to determine how large the economic fallout caused by COVID-19 will be and what other financial vulnerabilities it will expose. It will also doubtless highlight concerns for future debate, such as companies utilizing state aid if they have recent histories of share buybacks or high dividend payouts. Some companies have already withdrawn or cut-back on 2020 planned dividend payments and other distributions. But how such concerns ultimately play out will be discussions for a later time.
The COVID-19 outbreak is causing many companies to rethink their arrangements for 2020 AGMs in light of health concerns, restrictions on gatherings and travel, and the risk that venues selected for meetings may not be available because of unexpected closures.
Problems for companies are exacerbated by the fact that, in a number of jurisdictions, there are legislative requirements for public companies to hold an AGM within a specified period following their financial year-end.
In the case of France, the Netherlands, Spain, and the UK, public companies are required to hold their AGMs within six months of the financial year end. In Italy, AGMs should be held within four months of the financial year end, but this can be extended to six months in exceptional circumstances. In Austria and Germany, AGMs should be called within eight months of the financial year end.
This is a rapidly developing issue, and it is likely that emergency legislation will be passed in many jurisdictions either extending statutory deadlines for holding AGMs or granting companies the ability to hold virtual meetings, especially where there is legislation imposing restrictions on public gatherings.
At the time of writing, the majority of European companies appear to be going ahead with their planned AGMs although shareholders are being encouraged to vote by proxy, not in person. As noted above, because there are many national lockdowns, restricting movement and prohibiting gatherings, it is becoming increasingly likely that many if not most physical meetings will not be viable in normal main season timeframes.
By Chris Osborne; ISS European Research