Preparing for the 2021 AGM and reporting season

As the 2021 AGM and reporting season gets underway, we give an overview of the key changes affecting listed and AIM companies.

AGM arrangements

Format

Many companies in 2020 faced logistical issues holding their AGMs as a result of "stay-at-home" measures restricting physical gatherings. Consequently, temporary relaxations of certain requirements in the Companies Act 2006 relating to company meetings, whether AGMs or general meetings, were introduced and remain in place until 30 March 2021. The relaxations permit:

• company meetings to be held, and votes cast, electronically with no need for the meeting to be held in a particular place;
• companies to hold closed meetings; and
• companies to decide how shareholders are able to vote, whether electronically, by a show of hands or by proxy.

It is not clear whether there are any plans to further extend these relaxations. The position is therefore uncertain for companies planning their AGMs after the end of March 2021.

When deciding on the format of their 2021 AGM, companies should consider the recommendations made by the Financial Reporting Council (FRC) in its report AGMs: An opportunity for change as the FRC has indicated that, notwithstanding the flexibility introduced by the temporary relaxations, there should be improvements to shareholder engagement for 2021 AGMs.

Amendments to articles of association

Once the temporary relaxations expire, it will only be possible to hold hybrid or virtual shareholder meetings if a company's articles of association permit this (although legal and investor protection concerns may mean that fully virtual meetings may not be a realistic option at least for the 2021 season). Companies who haven't amended their articles to include such permissions may wish to consider doing so in 2021 so as to have flexibility regarding the format of meetings in the future. Companies may also wish to consider updating their articles to permit directors to postpone or adjourn meetings.

Timing

Public companies are still required to hold an annual general meeting within six months of the financial year end. There has been no extension to this requirement.

Companies do have nine rather than six months after their financial year end to file their accounts at Companies House (and this will remain the case until 5 April 2021). Likewise, the FCA has temporarily extended the deadline for a listed company to file its annual report and accounts by two months and has confirmed that this extension will continue to be available, as a minimum, for financial periods ending before April 2021. The FRC has encouraged companies to consider carefully whether they should extend their 2021 reporting timetable to take advantage of this extension. AIM companies also currently benefit from a similar temporary extension of up to three months.

Voting confirmation

From 3 September 2020, listed companies must ensure they are able to provide an electronic confirmation of receipt of a vote cast by electronic means as soon as reasonably practicable after receipt of the vote. Companies should liaise with their registrars to ensure the necessary arrangements are in place.

Corporate governance

2020 saw companies reporting on how they have responded to the corporate governance reforms implemented through the Companies (Miscellaneous Reporting) Regulations 2018 (Regulations) and the revised UK Corporate Governance Code (2018 Code).

Stakeholder engagement

The Regulations and the 2018 Code require directors to identify and engage with stakeholders and explain in the annual report how they have done so. The FRC has commented that many companies in 2020 have not sufficiently explained how their directors discharged this duty and, in particular, the responsibility to have regard to the consequences of decisions in the long term. The FRC's Financial Reporting Lab has published guidance on section 172(1) statements: Section 172 statements - how to make them more useful.

Remuneration

As in previous years, companies are expected to ensure that director remuneration, including pension contributions, is more closely aligned with wider workforce remuneration. Given the impact of COVID-19, there will be increased scrutiny of disclosures around remuneration in 2021. Generally, investors expect the remuneration of executive directors to have been impacted by COVID-19 in a manner consistent with the impact on the general workforce. The Investment Association has also indicated that shareholder expectations include:

• no annual bonuses to be paid to executive directors for 2020/21 if the company has taken government support unless there were exceptional circumstances which merited the payment of a bonus;
• a reduction in deferred shares related to the 2019 bonus where dividend payments for 2019 or 2020 financial years were suspended or cancelled; and
• no adjustment of performance conditions to account for COVID-19.

COVID-19

As you would imagine, COVID-19 related issues will be a focus for many companies as they report on 2020 and look ahead in 2021. The FRC in its end of year letter has set out its expectations of reporting and has emphasised the need for clear and transparent disclosure in relation to the impact of the pandemic on a company's business.

Brexit

Following the expiry of the withdrawal agreement implementation period on 31 December 2020 and the agreement of the EU-UK trade deal (see our Boardroom Brexit publications for further details), companies should report as fully as possible on their Brexit-related risks and the actions taken to manage these.

Environmental, social and governance

Climate change: with effect from financial years which begin on or after 1 January 2021, listed companies need to include a statement in their annual report setting out whether their disclosures are consistent with the recommendations of the Task Force on Climate-related Financial Disclosures and explain if they are not. The Investment Association supports this increased disclosure and has reiterated the need for companies to better explain how they will adapt and strengthen their business model in response to climate risks.

Diversity: the end of 2020 saw the expiration of the deadline for FTSE 350 companies to meet the recommendations to improve the representation of women on boards and in leadership positions. Consequently, there is likely to be a particular focus on diversity reporting in 2021 as recent figures suggest a significant number of companies have not met the target.

There is also an increasing focus on ethnic diversity on boards with the Investment Association recently indicating that companies should provide more detailed disclosures regarding their board's ethnic diversity in their annual report.

Further guidance

For further information or advice on any of the matters discussed in this publication, or to obtain a copy of our annual report and accounts checklist for officially listed or AIM companies, please get in touch with your usual Corporate contact at DLA Piper.