A rare shareholder proposal in Germany raises the question of whether virtual-only meetings should be held in non-emergency situations, with potash producer K+S squaring off against investor Deutsche Balaton.
With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.
In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and look deeper into the situation at Axon Enterprise, Inc. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.
Controversy Alerts May 13 — May 17, 2024
May 13 Hawaiian Electric Industries Inc.; Controversy Alert issued April 24
May 13 Megaworld Corporation; issued April 24
May 14 Tejon Ranch Co; issued April 24
May 14 3M Company; issued April 26
May 14 K+S Aktiengesellschaft; issued April 24
May 15 BlackRock, Inc.; issued May 1
May 15 Euronext N.V.; issued May 1
May 15 GFL Environmental Inc.; issued May 8
May 16 Deutsche Bank AG; issued May 1
May 16 Universal Music Group N.V.; issued May 1
May 16 Cboe Global Markets, Inc; issued April 30
May 16 Renault S.A.; issued April 30
May 16 W.A.G Payment Solutions plc; issued May 1
May 17 The Boeing Company; issued May 8
May 17 Evergrande Property Services Group Limited; issued May 1
May 18 Ambuja Cements Ltd; issued May 1
Deep Dive: K+S Aktiengesellschaft
The agenda for K+S AG’s upcoming AGM includes a shareholder proposal – a rarity for the German market. At issue is the company’s decision to hold the meeting in a virtual-only format. That’s allowed under the company’s current articles of association, in alignment with German law – but Deutsche Balaton AG, an 0.27% shareholder, has proposed that the company restrict virtual-only meetings to emergency situations based on concerns that K+S, which issued multiple profit warnings in the past year, is taking advantage of the authority in order to avoid interaction with shareholders.
Virtual meetings are still relatively new, but the Covid pandemic’s extended restrictions on public gatherings illustrated the value of giving shareholders who are unable to attend a shareholder meeting in person the opportunity to take part. Despite the widespread return to in-person meetings over the past few years, many companies have continued to offer a virtual option as a useful complement to traditional meetings. These “hybrid” meetings retain the benefits of in-person gatherings, while also lowering the barrier to attend and participate.
But as anyone who’s been on a Zoom can tell you, online participation isn’t quite the same as being there. There are ways of structuring a virtual or hybrid meeting to promote participation, including clear disclosure of the guidelines and timeline for submitting questions, along with rules for how comments will be recognised and disclosed to shareholders. However, although most shareholders appreciate having the option to participate without traveling, many still prefer to show up, ask questions and vote directly (also, the free sandwiches — or in this case, bratwurst).
In K+S’s case, virtual participation is the only option for 2024. The company notes that the practice is not uncommon in the market, with approximately half of DAX and MDAX companies opting for virtual annual general meetings this year. The company also argues that the format promotes sustainability by removing the need for travel, contributes to the advancing digitalization of communication, and to establishing new forms of communication permanently and soundly. It’s worth noting that the company has not taken full advantage of the law — while German companies are allowed to establish virtual meeting authorisations for up to five years, the company’s articles (as approved in 2023) only cover a two-year period through 2025. The company has stated its intention to hold a physical meeting next year.
On the other side of the debate, proponent Deutsche Balaton AG (which has a history of submitting AGM agenda items) argues that the lack of physical interaction makes the meeting less engaging, less flexible and significantly more static than an in-person format, where shareholders have the chance to exchange ideas, discuss with each other, and communicate directly with the management board and supervisory board. That’s all the more relevant when a company is struggling – and it’s worth noting that K+S incrementally cut its annual EBITDA forecast in half over the course of 2023 based on “decline in the price for potassium chloride, particularly in Brazil, which was stronger than initially expected, the subsequent price recovery, and possible negative effects as a result of the port strike in Canada.”
Regardless of the company’s circumstances and how the meeting is conducted, healthy communication requires good faith engagement from all sides. In this case, it appears the proponent’s fears go beyond the format itself, as Balaton has stated that the management board seems to avoid interaction in physical meetings, making it difficult to maintain and enhance shareholder trust. Given the still-relatively-widespread use of the virtual-only format in Germany, the company’s commitment to holding its AGM in-person next year, and the proponent’s proclivity for submitting resolutions, it will be interesting to see if other shareholders are convinced.
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