From Activist Shareholders To Tax Developments: Ready For AGM Season?

From Activist Shareholders To Tax Developments: Ready For AGM Season?
Companies will inevitably face changes again in 2024, very often related to ESG goals. As the season of shareholder meetings approaches, the question is what the agenda of the next AGM will look like. During a seminar for company secretaries, organized by Management Scope in collaboration with Allen & Overy, the key issues were discussed.

Below are six findings, dilemmas, and precautions. ‘Good preparation can minimize disruption.’

  1. The AGM fully online?
    Dutch law already allows shareholders to participate in a physical AGM online, but now there is a bill (soon to be sent to the Dutch House of Representatives) which aims to allow private and public legal entities to hold fully virtual AGMs. Three conditions must be met. Shareholders must be able to be identified, they must be able to cast their votes online, and they must be able not only to follow the meeting, but also to participate in it via video and audio using a two-way audiovisual means of communication. This two-way traffic is a requirement at hybrid meetings, and the technology, including request-to-speak buttons, is available.

    To make such a fully virtual AGM possible, the articles of association will need to be amended. Is it wise to put the topic on the agenda at the 2024 AGM, in supposition of its adoption? This was the primary focus of the discussion t during the seminar by Management Scope and Allen & Overy. Joyce Leemrijse, Notary of and Partner at Allen & Overy, sees advantages and disadvantages. ‘If you regulate it now, you can hold fully virtual meetings immediately after the bill is passed. That can be an advantage. At the same time, you run the risk that shareholders will not agree to it because is still merely a bill and - especially from the VEB - there is considerable criticism.’

    The probability of a negative shareholders vote has diminished considerably in recent years, according to her. Fully virtual meetings are already quite common worldwide and specifically non-Dutch shareholders are therefore expected to agree. Interest group Eumedion and the proxy advisors ISS and Glass Lewis also support it in principle, albeit with some reservations. For example, they believe that physical or hybrid meetings should never be precluded. The fully virtual option should be additional, not instead of. ISS also argues that the articles of incorporation should state under what circumstances a fully virtual AGM will be chosen. The proxy advisors say they want to assess on a case-by-case basis whether a company sufficiently meets their requirements. It therefor to a large extent depends on their advice whether a company is well advised to put such an amendment to the articles of association on the agenda already at the upcoming AGM. 

  2. Corporate governance code 2022
    The updated Corporate Governance Code 2022 will become law on January 1, 2024, and the revised code must be on the 2024 AGM as a separate agenda item. Companies will then have to, for the first time, report on compliance with the Corporate Governance Code 2022 with respect to the fiscal year that began on or after January 1, 2023. It is therefore important to take another look at policies and regulations in the areas of sustainable long-term value creation, stakeholder dialogue, diversity and inclusion and the impact of digitalization and adjust them where necessary to ensure compliance with the revised code. ‘This also applies to companies that are not covered by the code, but do follow it,’ Leemrijse stressed.

  3. Adoption of remuneration policy
    Thanks to the say-on-pay shareholder directive, the remuneration policy must be submitted to the AGM every four years. In many companies, the subject is on the agenda in 2024. Approval is not a given. It is not without reason, Leemrijse emphasizes, that many companies have been on road shows for months to explain their policies. One of the dilemmas: do you as a company comply with Eumedion’s wish to link part of the variable remuneration to ‘relevant, challenging, measurable and verifiable ESG objectives?’ Leemrijse: ‘Anyone who is not ambitious enough will be judged on that. Those who set challenging targets run the risk of not achieving them.’ Moreover, many international and especially American investors do not fully agree with the Eumedion recommendation. They consider other aspects of the remuneration policy more important. Leemrijse: ‘Consider carefully where your shareholder base is and how they will vote, because that can have a decisive influence on whether or not you get your remuneration policy approved.’

  4. Activist shareholders
    Many companies can no longer avoid it: activists who, by purchasing one share, acquire the right to be present at the AGM and disrupt the order by repeatedly asking the same question about sustainability goals (Milieudefensie) or by shouting, singing, whistling, storming onto the stage or gluing themselves to something (Extinction Rebellion). There was lively discussion as to how to deal with it during the seminar. What is paramount, Leemrijse said, is that all shareholders - including activist ones - have voting and meeting rights. No one can therefore lightly be denied access. Good preparation, however, can limit disruption, Kirsten van Rooijen adds. She works at Computershare and, along with Leemrijse, leads the discussion and guides many companies during their shareholder meetings. ‘If you know that Milieudefensie puts the same question forward repeatedly, you can prepare an answer script in advance and discuss when the chairman should cut off the questioner. Also mention in advance that shareholders who disrupt the AGM will be removed on the basis of trespassing - but then do so in consultation with the police and make a joint plan ahead of time.’

    Other tips from experience experts: in other countries, plexiglass screens are placed in front of the (preferably raised) stage for security purposes. Watch YouTube videos of AGMs that have been disrupted in the past, to know roughly what to expect. And perhaps most importantly, prepare well for the chairman, who must maintain order, and stay calm. The biggest danger, according to one seminar participant, is showing irritation, adding to reputational damage.

  5. CSRD
    The European CSRD Directive imposes new rules on large companies that require them, among other things, to record their CO2 emissions and environmental pollution. The aim is to improve the quality and comparability of sustainability reports. The directive will take effect from January 1, 2024, for listed companies with more than 500 employees. They will have to collect the correct information from that date on to report on it in the 2025 annual report. Other large companies will follow a year later. This means it is not yet an agenda item for the 2024 AGM, but companies should start working on it. Another European directive, the CSDD, requires companies to identify potential impacts of business operations on people and the environment and to prevent and mitigate it where possible. At the time of the seminar, the exact scope of this directive was still unclear. By now, a preliminary agreement has been reached between the European Council and the European Parliament.
    When the CSDD is adopted, it will be implemented first in national legislation and companies will not have to deal with it until 2026 at the earliest.

    In the Netherlands, companies may have to deal with the Responsible and Sustainable International Business (VDIO) bill, which is currently for consultation with the Council of State, this year. The bill includes a general duty of care regarding people and the environment for every Dutch company operating abroad and for foreign companies with activities in the Dutch market. The overlap with the European CSDD Directive is evident, but it is precisely because that legislation has been delayed that the House of Representatives took the initiative for the VDIO in 2021. Whether the bill will be passed has become uncertain, given the Dutch election results. Given this, it seems as though companies will not anticipate these directives yet.

  6. Fiscal developments
    On the tax front, there are three changes for the 2024 or 2025 AGM checklist. First, Eumedion has called on listed companies to endorse the principles of the 2022 tax governance code, which states, among other things, that a company considers paying tax not only as a cost, but also as a means for ‘socioeconomic cohesion, sustainable growth and long-term prosperity’. Not all companies affected have yet heeded that call.

    A second matter: as of June 22, 2024, the European Country-by-Country Reporting Directive comes into force, which states that multinational companies with a consolidated turnover of more than EUR 750 million must start publishing on their worldwide distribution of profits and taxes paid. In doing so, they must indicate how that relates to their economic activities in those countries (such as number of employees and assets). From 2025, affected organizations will have to include this in their annual reports.

    A final tax change concerns the tax the government wants to levy on the repurchase of its own shares. Until now, Dutch listed companies were, under certain restrictions, exempt from dividend tax. The House of Representatives has since agreed to abolish this facility, which means that from 2025 dividend tax does have to be paid, with significant consequences for the tax efficiency and attractiveness of share repurchases. Some alternatives to share repurchase were therefore presented during the seminar, such as paying more dividends, using a secondary trading line for repurchases, or reducing the number of outstanding shares through a reverse stock split. The new regulation does not take effect until 2025, but if companies are considering alternatives, they must arrange the necessary authorizations from shareholders for this already at the 2024 AGM.

This article was published in Management Scope 02 2024.