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18 | Environmental and social transparency under the Companies Act 2006Proposal 3: Regulations to consolidate and enhance the role of company AGMs | 19There is therefore a strong case for a legal mechanism that ensures greaterconnection between physically and psychologically remote companymembers and the way that their business and investment decisions playout ‘on the ground’. 27 The proposed reform solidifies this link, helping toreduce the detachment that can be maintained between business and itsimpacts, and making for more effective regulation of companies.Not only does this process provide scrutiny to the reporting requirementsof section 417(5)(b), it plays a broader role in providing context to thedirectors’ reporting process as a whole. The directors’ report is in largepart designed to help shareholders assess how the directors have performedtheir duty to promote the success of the company, 28 which underthe Companies Act 2006 requires that directors must act in the way theyconsider, in good faith, would be most likely to promote the success of thecompany having regard to “the likely consequences of any decision in thelong term” and “the impact of the company’s operations on the communityand the environment”. 29While in practice this scrutiny can already be provided under existinglaw, and in many important cases it is already being provided, there are anumber of problems with this process remaining unreflected and unsupportedin law:- The law does not reflect reality or the expectations of the partiesinvolvedThe law as it stands is artificial. In reality these practices are standardprocedure for companies at their AGMs, and reflect dynamicsof expectation that no responsible director would seek to challenge;company directors know that they are expected by the public at large(and indeed the law) 30 to take account of, and have sensitivity to, factorsother than the short-term financial bottom line. That the practiceoutlined in Annex 7 remains uncodified is unacceptable: it sustainslegal fallacy that some companies may try to exploit.- There is no standardised procedure to control access to meetingsWithout a procedure which formally acknowledges and demarcates theright of access, abuse or over-use is an obvious possibility and practicemay lend itself to disadvantage from both individual and companyperspectives.From the perspective of the individuals who have been affected,over-use of the opportunities of access may lead to their submissions,however serious or concisely presented, being received by jadedshareholders (or indeed fewer shareholders - they may be put off fromattending by the expectation of long questions and discussion). Thereis a limited amount of time in any given meeting that may usefully bespent discussing these aspects of company activity, and so a procedureto ensure that that time is used most efficiently is to the advantage ofall parties.- Attendees receive limited supportOften the people who have been negatively affected by company activitiesmay be at a disadvantage when pitched against directors and companyrepresentatives in meetings. English is rarely their first language,and when confronted with commercial or legal sophistry and technicality,they may have difficulty responding in a way that convincesshareholders of the importance of their perspective.Furthermore, there are major logistical barriers to such people attendingmeetings in the UK; the attendant travel and subsistence costs areoften significant.Often in practice this advocacy or logistical support is provided bynon-governmental organisations or concerned individuals who arealready stretched for resources.- There is a need for enfranchisement in relation to electronic meetingsPhysical company meetings are decreasing in relevance, for twomutually precipitating reasons. First, especially in the case of largepublicly-traded companies, attendance at AGMs is not necessarilyhigh. Increased shareholding by institutional investors, advances incommunications technology encouraging and facilitating physicallyremote shareholding, or a number of other factors, may contributeto this. Secondly, partially as a result of this trend, and advances intechnology, there is a movement towards the use of electronic communicationtechnology to conduct the business of meetings.This development is reflected in and enabled by recent and forthcominglegal reform. The Companies Act 2006 included a number of
20 | Environmental and social transparency under the Companies Act 2006Proposal 3: Regulations to consolidate and enhance the role of company AGMs | 21provisions beginning to facilitate this shift, 31 and the The Companies(Shareholders’ Rights) Regulations 2009 32 have taken further steps inthis direction. Significant fundamental reforms are yet necessary toallow this process of facilitation to be completed, 33 but it is a trend thatis likely only to continue.Therefore, in the future, physical meetings will not necessarily bean effective forum for aggrieved parties to inform shareholders andengage with directors, thereby providing important scrutiny to thereporting process. It is vital that these people are able to continue toengage with the business of AGMs, whether conducted physically orelectronically. Indirect legal mechanisms may not sustain this type ofactivity and engagement. Accordingly it is necessary to look at waysthat people who are routinely granted access to and audience withcompany AGMs can be enfranchised in ways that remain meaningfulas technology moulds and shifts the way in which general meetings areconducted in the future.These problems, combined with the clear positive case for this reform,provide a compelling case for codification.Logistical supportIt has been noted that in practice there may be financial and communicationbarriers to the attendance and proper representation of the peoplediscussed above. If these people are to be given access to meetings andplay this important role, as they have been in practice for many years,support should be provided by an independent and public fund to ensure(i) that they are able to communicate the importance of their experienceson a level footing with the directors or representatives of companies, and(ii) that prohibitive cost does not stand as a barrier to access.Enfranchisement in relation to electronic meetingsIt has been noted that there is a movement in the law and administrationof company AGMs towards the use of electronic means rather thanphysical, to conduct the business of company meetings. The facilitation ofthis process in law is far from complete. However, the Regulations shouldinclude an obligation on the Secretary of State to ensure so far as possiblethat the rights and roles established by the Regulations are secured in relationto meetings conducted electronically in the future.The role of the Secretary of State or other body as appropriateFor the codification of this mechanism, it is necessary that the Secretary ofState, or such other body as competent, oversees and regulates the process.While it is proper that such powers derive from the Secretary of State, inpractice it would be pragmatic and appropriate for the role to be delegatedto a separate body. If the FRRP’s capacity were considerably diversified asproposed above then it might be an appropriate choice. It might be fittingfor distinct positions to be created on the FRRP to oversee this process,for which appropriate individuals could be retained. However, it is of theutmost importance that the body exercising oversight of this process isindependent of the interests of corporate management or indeed any specificindustry, and therefore only were the FRRP re-constituted in such asignificant way, as proposed, would it be an appropriate body to undertakethis role.The role of such a body would be to monitor and regulate the access of personswho have been negatively and directly affected by company activities,or their representatives, to determine where their attendance and representationswould be appropriate in providing contextual perspective to thereporting obligations of companies under section 417 of the CompaniesAct 2006. It could do this on a case-by-case basis, but such a body mightalso develop guidelines so as to simplify the process. The body would alsoplay the vital role of determining and allocating support as appropriate tosuch persons, to ensure that linguistic, advocacy or financial considerationswould not undermine the input that they might have to the process.For these purposes it would need to maintain a fund, independent of theinterests of corporate management or any specific industry.TransparencyCurrent legal requirements provide inadequate transparency aroundAGMs. Independent media have no right of access to AGMs, and companieshave no obligation to make minutes of the meetings easily available toshareholders who were not in attendance, or available to the public at all.
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