Statement on Corporate Governance and Annual General Meetings in 2025

This statement was created by a team including Susana McDermott, ICCR’s Director of Communications and Nadira Narine of the Interfaith Center on Corporate Responsibility and Cynthia Simon of the Shareholder Rights Group

A central tenet of U.S. capital markets is that boards of directors of public corporations are accountable to their shareholders. The annual general meeting of shareholders (AGM) is, therefore, a critical once-a-year forum where shareholders can exercise their rights by engaging directly with the board and management, voting on directors, and deliberating on fellow investors’ proposals on significant issues facing the company. A well-run and open AGM that encourages full participation is essential to building trust and mutual understanding between companies and their stakeholders.

However, annual meetings have undergone significant structural changes in recent years that impede shareholders’ full participation in AGMs. This statement addresses four areas of concern for investors where basic corporate governance norms are being eroded at AGMs, and proposes remedies to correct deficiencies and ensure shareholders’ voices are being fully considered:

1. The Right to File Shareholder Proposals
2. Shareholders’ Ability to Attend AGMs In Person
3. Remedying Virtual Participation Issues
4. Shareholders’ Use of Universal Proxy Cards

1) The Right to File Shareholder Proposals

The right to file and vote on shareholder proposals on governance, and on environmental and social risks is a fundamental right of investors as key stakeholders in companies and supports a private ordering process that benefits both companies and their investors. Unfortunately, the process for filing, presenting, and voting on these proposals at AGMs is becoming ever more restrictive.

While board elections are one form of accountability, the ability to frame critical issues facing a company through proposals is an essential, efficient, and focused complement to the right of shareholders to vote for board members. Shareholder proposals allow investors of all sizes to present issues for consideration by fellow investors. Voting outcomes allow investors to express a collective voice on the materiality of many risk management issues that can strengthen critical corporate governance infrastructures. Management and boards should be responsive to shareholder proposals that receive significant support. [SM1]

Importantly, shareholder proposals are an important stewardship tool for investors to manage their portfolio risks by improving corporate governance and disclosures and encouraging responsible corporate action at investee companies. As such, we support the Securities and Exchange Commission’s (SEC) Rule 14a-8 and express grave concern regarding efforts to circumvent or dilute it, including the lawsuit filed by Exxon against the proponents of a climate risk shareholder proposal in Exxon v. Arjuna. Such litigation is counterproductive and could have a chilling effect on the ability of shareholders to exercise their voice in corporate annual meetings. We call on companies to respect and support shareholders’ right to file proposals and to implement the needed processes to ensure they receive the proper attention of the board and shareholders.

2) The Ability for In-Person AGM Participation

The COVID-19 pandemic catalyzed the widespread adoption of a virtual format for annual meetings for questions of public safety, temporarily forcing most companies to abandon in-person annual shareholder meetings. Despite a public health environment that now supports in-person meetings, virtual AGMs have become the adopted norm. To protect shareholder voice, annual meetings must always retain an in-person element and the quality of engagement in annual meetings with both in-person and virtual participation should be sustained.

The AGM is the main opportunity for shareholders to ask questions, and to challenge the board and management on its decision-making. However, a virtual-only meeting is a poor substitute for the real-time exchange that occurs in a face-to-face meeting and the accountability that enables. Many virtual meetings have devolved into robotic or scripted rituals, instead of providing a forum for genuine engagement and a more deliberative process. In-person attendance at an annual meeting should be a choice left to shareholders, not a decision of management.

While there is a distinct value to having a virtual option, we believe every public company should resume an in-person option for annual meetings with the ideal being a hybrid format in which boards and some shareholders meet in person, but other shareholders are also able to participate through a virtual video link. Meetings that are held in person, but also have a virtual component, allow for broader participation by investors without sacrificing the important engagement among investors and officers who are meeting in person

3) Remedying Virtual Participation Issues

To the extent that virtual participation at AGMs remains an option, there have been recent practical challenges and limitations that need remediation. For example, there have been several technical challenges or limitations on the presentation of shareholder proposals through virtual platforms.

In 2024, several companies told investors who wanted to present proposals virtually that they must read proposals verbatim, a departure from standard practice and precluding important updates from the proponents such as developments since the filing of the proposal, discussion of any engagements with the company on the proposal and responding to the opposition statement and any other communications from the company. This has inappropriately limited the shareholder presentations that are part of the SEC shareholder proposal rule requirements.

Other aspects of virtual meetings have also created barriers to communication for shareholders, most notably the Q&A. An article in Barron’s [SM2] in September 2024, summarized investors’ frustration as follows:

In some cases, companies are unreasonably restricting the voice of investors in meetings, such as only taking questions submitted online and then summarizing them in ways investors believe distort their meanings – or not answering them at all.

Moreover, a functioning, deliberative meeting process should allow shareholders attending virtually or in-person to actually deliberate. This means the AGM participants should be able to hear the presentations of the proposals, ask questions on each item, and vote (or change their votes) after hearing shareholder and management perspectives. This means allowing sufficient time for voting to occur after the presentation of all proposals. From what we have seen, best practice is to allow at least a 10-minute voting period after the presentation of the last proposal before voting is closed (e.g., after a general Q&A session).

Furthermore, any virtual-only meeting process, or virtual participation of directors or the CEO in a hybrid meeting, should provide for continuous, visible real-time video of the CEO and board members throughout the process.

4) Shareholders’ Use of Universal Proxy Cards

Universal proxy card and proxy access rules are intended to empower investors in board contests. With the SEC’s implementation of the universal proxy card beginning in 2023, investors have important new rights to nominate directors and issue proxy cards. However, some companies have been erecting unreasonable constraints that interfere with these rights through extensive advance notice bylaws that impede board nominations and other proxy proposals. Modest fixes can protect shareholder rights.

To the extent that certain stockholders issue their own proxy statements consistent with the universal proxy rule, the rules require each proxy card from the registrant as well as the dissident stockholder to include both the registrant’s nominees and the dissident stockholder’s nominees. However, coinciding with the implementation of these new rules has been the corporate adoption of new advance notice bylaws which, in worst cases, require expansive disclosures by nominees and proponents and provide unlimited discretion to the board to reject candidates.

Many boards now require shareholders to make long and complicated sets of disclosures to nominate candidates for board elections. These disclosure requirements — contained in “advance notice bylaws” (ANBs) — have come under fire in the Delaware courts for being drafted so expansively that they seem “akin to … tripwire[s]” “designed to thwart an approaching proxy contest, entrench the incumbents, and remove any possibility of a contested election.” Kellner v. AIM Immunotech Inc., 320 A.3d 239 (2024), (Del. July 11, 2024). A corporation’s legitimate need for notice and disclosure must be balanced against the shareholders’ fundamental right to nominate candidates to the board.

As an example of a simple fix, shareholders have begun voting on proposals asking companies to amend bylaws to require the Board to notify any shareholder of any specific defects or deficiencies contained therein within fourteen (14) days of receipt by the Company and to allow the nominating shareholder a fourteen (14) day period to cure any such defects or deficiencies. Such a minimal fix helps to ensure that investors’ rights and beneficiaries’ interests are protected.

Conclusion

This statement has addressed four areas of significant concern for investors regarding AGMs, as basic governance norms and shareholder rights have been disrupted and eroded. Most issuers currently lack a coherent structure to maintain AGMs as a forum for effective shareholder participation and engagement. Our organizations urge registrants to engage in best practices on the set of new challenges and issues and to work with company shareholders to assess needed changes at each company.

We welcome any questions and further discussions of these issues that will help improve the quality of AGMs.