Berlin, Dusseldorf Germany’s around 14,000 stock corporations should be allowed to hold their general meetings (AGM) virtually in the future. This is provided for in a draft bill by the Federal Ministry of Justice (BMJ), which is available to the Handelsblatt in advance.
According to this, the “classic” face-to-face meeting should continue to be possible, but also the virtual variant, in which the exercise of shareholder rights “must take place by means of electronic communication and in some cases in advance”, as the draft says. The new format does not represent a “second-class meeting”.
Specifically, the draft bill provides that stock corporations and related legal forms such as the European company (SE) will be given the opportunity to hold their general meetings “without the physical presence of all shareholders”.
The articles of association can therefore either determine the format as a virtual AGM itself or provide an “authorization” in favor of the board of directors. However, such an authorization of the Executive Board must be limited in each case – to a maximum of five years.
The minimum requirement is the “audio and video transmission of the meeting” and a minimum standard for the exercise of shareholder rights “before and during the meeting”. The “Frankfurter Allgemeine Zeitung” reported about it first.
In the future, affected companies will no longer need to rent rooms for the AGM and no longer have to deal with complex organization. The draft assumes that face-to-face meetings at large listed companies will cost up to 2.5 million euros. The economy could save 35 million euros annually through the innovation.
The draft should go to the association hearing on Wednesday if no other ministry objects in the departmental vote.
So far only Corona special regulation
Because of the corona pandemic, the federal government had already created an emergency law in 2020 that made it possible to hold purely digital shareholder meetings. In this way, the companies were able to carry out their general meetings with legal certainty despite contact restrictions. The regulations were initially limited to the end of 2021, but were extended to August 31, 2022 in view of the ongoing pandemic.
Now the virtual HV should become the norm. Since the special Corona regulation came into force, the AGMs of listed companies – “as far as known” – have almost exclusively been held as virtual general meetings, according to the draft. It has been shown “that this form of assembly has basically proven itself”. The practice has received the instrument “predominantly positively”.
However, the ministry concedes that the special regulation does not allow the exercise of shareholder rights to the same extent as with a face-to-face or hybrid meeting. If, for example, the shareholders exercise their voting rights solely via electronic postal voting, electronic participation in the meeting is not possible. As a result, shareholders would not be able to exercise their right to submit motions or speak at the meeting. That is why a new “Virtual General Meetings Act” is necessary.
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As advantages of the virtual format, the draft names an increase in shareholder presence and easier participation for foreign shareholders and small shareholders, “for whom not inconsiderable costs for travel and accommodation may arise”. The possibility of shifting the right to ask questions in the run-up to the meeting has contributed to “increasing the quality of the answers to shareholder questions”.
Affected companies would no longer need to rent rooms for the AGM and would no longer need to deal with complex organization.
(Photo: Munich Re, Oliver Soulas)
Compensation for Shareholders
The Federal Ministry of Justice assumes that there are around 5.3 million shareholders in Germany, although not all of them take part in AGMs. In the case of virtual meetings, the right to vote, to submit motions, to be informed and to speak, and the option to lodge an objection “by means of electronic communication” must be made possible.
However, only the right to speak must be a video switch. The right to vote can be exercised, for example, by e-mail or via a function in the shareholder portal. The same applies to filing objections.
With regard to the right to information, for example, the Executive Board can stipulate that questions must be submitted via electronic communication “at the latest four days before the meeting”. In the assembly itself, a right to ask is then “mandatory”. Statements from shareholders could also be submitted in advance. In return, the management board report or its “essential content” must be made available to the shareholders no later than six days before the AGM.
All of this saves time and “equalizes” the HV, writes the BMJ. Long speaking times for shareholders – the general meetings of large companies sometimes last ten hours – would thus be a thing of the past.
The draft is also about the sharpest sword that shareholders have when it comes to general meetings: namely the subsequent challenge to the resolutions passed there. The federal government had effectively ruled out such legal actions for the virtual AGMs in the Corona Emergency Act.
Many companies saw this as a blessing because they were spared the subsequent legal disputes with so-called professional plaintiffs. The draft now stipulates that technical faults should not be a reason for challenging decisions.
Business welcomed the move. The Federation of German Industries (BDI) was generally positive. Now comes the detailed check. The Deutsches Aktieninstitut praised the fact that the federal government is now taking action. “The procedure should proceed quickly so that we don’t fall back to the general meeting in person in 2023,” said Deputy Managing Director Franz-Josef Levent. But he demanded: “Legal risks must be clarified and eliminated so that a virtual general meeting does not become more risky and expensive than a face-to-face general meeting.”
Shareholder protectors: “Simply slowed down”
Shareholder protectors were not yet convinced of the federal government’s plans. It is recognized that the Ministry of Justice wants to present a proposal that is as balanced as possible, said Marc Tüngler, general manager of the German Association for the Protection of Securities (DSW).
It is important that the right to information and the right to challenge remain almost unaffected and that individual rights, such as the right to ask questions, are not linked to specific participation levels. “But whether the proposed tools are really suitable for enabling interaction between shareholders and companies is more of a question mark,” said Tüngler.
From the point of view of the shareholder protector, the focus of a new regulation must be to open up the virtual general meeting for an open exchange and dialogue and not just to enable consecutive monologues without reference to each other. If there is no possibility for live statements in the AGM, it is “rather unlikely that the administration will listen seriously”.
“The virtual general meeting has definitely not proven itself in the last two years,” criticizes Tüngler. “The shareholders were simply slowed down.” Now their rights should be fully restored.
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