Canada: Virtual AGMs For Canadian Issuers: It's Starting!

Governance and directors' liability

General context

With the advent of new technologies, many issuers are considering using electronic means to reach a greater number of their shareholders. Integrating technology to annual general meetings of shareholders (AGMs) is certainly an illustration of this. A virtual annual general meeting of shareholders (virtual-only AGM) is a meeting that takes place exclusively using online technology, without a corresponding in-person meeting. It must be distinguished from a traditional AGM, which is held in person, but also from a hybrid AGM, which is held in person with a simultaneous online broadcast.

There has been a growing number of virtual-only AGMs in the United States. According to Broadridge Financial Solutions, the main provider of virtual meeting platforms, the practice has grown more than 700% since 2010, with nearly 200 virtual meetings held in 2016. For instance, companies such as Ford, Sprint, Intel and Hewlett-Packard have recently opted for virtual-only AGMs. Broadridge has noticed a particular popularity among technology companies as well as new issuers.

Very few Canadian issuers have held virtual-only AGMs and, to the best of our knowledge, most virtual meeting platform providers do not currently offer a product tailored to the Canadian market. However, Broadridge is currently working on customizing its American platform for Canada and a Canadian corporation recently held its first virtual-only AGM, with the assistance of TSX Trust Company.1

The "adequate communication" requirement

Virtual-only AGMs are authorized under most Canadian corporate statutes, often requiring that (i) the corporation's by-laws expressly allow the meeting to be held by means of a telephonic, electronic or other communication facility or do not specifically provide otherwise and (ii) such communication facility "permits all participants to communicate adequately with each other during the meeting."2

It remains unclear what constitutes adequate communication and how virtual-only AGMs would satisfy this requirement. In an effort to keep Delaware law3 current with technological advances, the Delaware General Corporation Law was amended in 2000 to allow companies to hold virtual-only AGMs, provided shareholders are given "a reasonable opportunity to participate in the meeting" and "to read or hear the proceedings of the meeting substantially concurrently with such proceedings." We believe the "adequate communication" requirement is more demanding than ensuring shareholders are given a reasonable opportunity to participate.

Potential benefits

  • Increasing shareholder accessibility. Through technology, shareholders can participate in a virtual-only AGM from wherever they wish. This may be increasingly important as corporations and investors become more global. One could counter-argue that proxy participation already affords shareholders the ability to contribute to the meeting without being physically present. However, it is incomparable to actual presence, whether physical or virtual.
  • Increasing shareholder participation. With improved access, more shareholders are able to participate. Furthermore, since many issuers hold their respective AGMs during the same time of the year, shareholders can participate in more meetings if they do not have to go to each of them physically.
  • Reducing costs and disruption for corporations and shareholders. AGMs require significant time, effort and expense. With virtual-only AGMs, issuers no longer have to rent a venue and shareholders do not have to spend money on travelling. A virtual-only AGM may also be less disruptive by letting everybody involved in the AGM return to their routines quickly.
  • Reducing carbon footprint. Virtual-only AGMs mean less travel for management, the board and shareholders, and fewer printed materials.
  • Keeping up with technology. Issuers hosting virtual-only AGMs may seem to be at the forefront of what technology can offer. This may be especially important for technology companies.

Potential concerns

  • Preventing shareholders from communicating adequately. One of the central challenges of virtual-only AGMs is effectively managing discussion and debate. Since questions are submitted in an electronic format, a meeting's chairperson could choose which questions to acknowledge and answer. This creates a potential for abuse by allowing the chairperson to "cherry-pick" the shareholders who are allowed to ask questions, thereby controlling the agenda of the meeting. Despite the decision to call a virtual-only AGM being made in good faith, the ability of the chair to decide not to answer certain questions could be interpreted as a way to prevent participants from communicating adequately with each other, a legal requirement for issuers incorporated under most Canadian corporate statutes.
  • Complicating the management of shareholder interventions. A chairperson may have trouble managing questions efficiently when dealing with a large group of shareholders. It may also be more difficult to maintain order among participants who are not physically present in a room. Further, the sense of anonymity created by virtual communications can affect how shareholders act and react, with the risk of diminishing the quality of dialogue and fostering aggressive interventions. Lastly, virtual-only AGMs may present a lack of personal interconnection, which in turn could compromise the ability of shareholders to fully judge the performance of management.
  • Dealing with shareholder opposition. Some shareholders may oppose an issuer holding a virtual-only AGM. For instance, the comptroller of New York City and overseer of the city's pension funds, with over $170 billion in assets, recently advocated against virtual-only AGMs, urging issuers to abandon the practice.
  • Increasing uncertainty related to shareholder votes. With virtual-only AGMs, more shareholders are able to attend and vote. To the extent that votes could be changed in real time, shareholders are less likely to vote by proxy in advance, making voting results less predictable.
  • Handling IT issues. Should they occur, technical flaws may paralyze and delay a virtual-only AGM.

Recommendations

Canadian issuers who decide to hold a virtual-only AGM in the future will certainly have to deal with a degree of resistance to change. They will need to establish adequate guidelines and best practices to ensure their choice to hold a virtual-only AGM is not perceived as a way to prevent shareholder participation by hiding behind technology.

  • Allowing adequate communication. Issuers who wish to use virtual-only AGMs will need to make tremendous efforts to allow adequate communication by shareholders. Ideally, that means allowing shareholders to interact in real time with each other and with the chair.
  • Establishing appropriate procedures. Transparent and comprehensive procedures to securely identify attendees as well as to enable and record online voting should be established. Procedures to ask, manage and answer questions remotely will also need to be put in place, such as displaying all reasonable questions asked during the meeting and organizing and answering questions based on their subject matter or the order in which they are submitted.
  • Choosing the right timing. Ideally, an issuer's first virtual-only AGM should mainly address uncontentious matters. The optics of an open and transparent meeting are particularly important in the context of significant shareholder dissent or controversy. If one of the meeting's topics is controversial and adequate procedures have not been established, the decision to hold a virtual-only AGM may be criticized as a method of controlling shareholder participation.
  • Achieving a progressive transition. An issuer could start with a hybrid AGM and slowly move towards the virtual-only model, as it was done by some companies in the United States. Issuers should also discuss the proposed changes with prominent shareholders.

Conclusion

With comprehensive procedures in place and a reliable virtual meeting platform enabling participants to communicate adequately with each other, virtual-only AGMs could be a great tool to broaden shareholder access while reducing costs and disruption for Canadian issuers and their shareholders. The practice is gaining pace in the United States and it will be interesting to see how this trend will catch on in Canada. Canadian issuers seeking to modernize their meeting practices should stay tuned.

The author wishes to thank law student Charles-Étienne Borduas for his help in preparing this legal update.

Footnotes

1 Concordia International Corp. (TSX: CXR). For more information, see: https://www.tmx.com/newsroom/press-releases?id=587⟨=en

2 See Section 132 (5) of the Canada Business Corporations Act, Section 131 (3.1) of the Business Corporations Act (Alberta) and Section 126 (4) Corporations Act (Manitoba). Section 94 (2) of the Business Corporations Act (Ontario) does not include the "adequate communication" requirement.

3 More than 50% of all publicly traded companies in the United States, including a majority of the Fortune 500 companies, have chosen Delaware as their legal home.


About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

Law around the world
nortonrosefulbright.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.