If I say “general meetings”, if you are an entrepreneur, a director or a shareholder, chances are that you think “waste of time”, “administrative process”, “boredom”…
If you are naturally positive, you may think “dividends”, “communication”, “participation”…
But the more experienced among you also think “Compliance”.
How does the General Assembly
contributes to Compliance?
Compliance or Conformity means all actions aimed at making the measures and behaviour of managers and staff within public or private organisations (non-profit organisations, companies, trade unions, etc.) as well as vis-à-vis third parties, conform to the external and/or internal standard applicable to the place where they operate (https://m-url.eu/r-3tiv)
In Belgium, every company or association is required by law to hold a general meeting at least once a year. The purpose of this meeting is to approve the annual accounts and to give, if necessary, discharge to the directors of the company for the exercise of their mandate. In terms of accountability, this is an important moment for the board of directors.
The organisation of the general meeting is therefore a legal obligation. It must be held in accordance with the procedures set out in the Companies and Associations Code (the “CSA”).
What is the cost ofnon-compliance?
Did you know that in 1998, Barco’s general meeting was declared null and void by the courts because several peace activists were denied the right to ask questions? Imagine the impact of such a decision.
It is generally accepted that the cost of non-compliance is 2.5 times that of compliance. And this cost tends to increase by 50% every ten years.
In Belgium, to speak only of our country, the CSA has set the ceiling for the liability of company directors at 125,000 EUR for the smallest companies and 12 million EUR for the largest. Have you recently accepted a position as a director, even if unpaid, in a start-up company? You should probably think about it…
The statute of limitations for these breaches of the CSA is 5 years.
It is important to note that this applies of course to regularly appointed directors but also to de facto directors, i.e. any person, whether paid or not, who exercises all or part of the functions normally vested in the board of directors.
A decision of the Court of Cassation of 17 December 2019 thus recalled the rule according to which both a natural person holding a corporate mandate and a de facto manager of a company – de facto manager – is liable to incur both the criminal liability of the company and their own liability when these persons act outside the legal framework (https://miniurl.be/r-3tiu).
There are therefore very good reasons to spend a little time complying with what may sometimes seem like formalities and to take the opportunity to make sense of them.
How is the General Assembly organised?
The classic general meeting
For years there was only one form of organisation, the general meeting in which the various shareholders physically participate.
Obviously, in the case of a single or quasi-single shareholder, these meetings were not necessarily held. But minutes were nevertheless drawn up attesting to the holding of a meeting on a given day at a given time in the presence of people who were not actually there.
Technically, this was of course a forgery … even if the authors and signatories of such documents could not be accused of any malicious intent.
This is why the legislator has now provided for other ways for shareholders to participate in general meetings.
the written general meeting
SRLs, SAs or SCs, but since then also A(I)SBLs, can take any decision in a purely written meeting of the general meeting. All that is required is that the convening notice provides for this method of voting, that the shareholders agree to it and above all that all decisions are taken unanimously.
The written general meeting is therefore particularly suitable for companies with a very small number of shareholders.
Since this procedure is purely written, when the company has only a few shareholders, it is questionable whether a vote would have been expressed without a presentation by the board of directors or a debate.
It is for this reason that the unanimity of the shareholders is required.
Indeed, it is the shareholders as a whole who must find this unanimity. Not only the voting shareholders. A vote against or even an abstention is enough to make the implementation of this process fail.
Why invite shareholders to participate in the general meeting?
Originally, the shareholders of a company were only required to have the affectio societatis necessary for the creation of a company and to remain shareholders of the company. This is the intention to contribute together to the success of the company.
However, it is clear that many shareholders are more interested in benefiting from the company’s success than in contributing to it.
The participation of shareholders in the general meeting is in a way the health report card of the shareholders’ commitment to the company’s project. The more shareholders there are, the greater the chances that they will adhere to the company’s project. And that they will be attached to it the day the company needs to call on them. Whether it is to contribute to improving the company’s image by becoming its “ambassadors” or, more prosaically, to participate in a possible capital increase.
Many companies, including listed companies, are not particularly motivated by the idea of having to answer questions from their shareholders at a general meeting.
This is probably a misjudgment of the strategic value of the general meeting. What is the point of organising investor days if you are not even able to establish direct and constructive communication with your shareholders on the day of the general meeting?
How to improve attendance?
Nowadays, shareholder participation in the general meeting does not depend so much on the quality of the sparkling wine served at the meeting as on the content of the meeting and the ease with which shareholders can participate.
The legislator is not fooled and imposes on companies (i) a list of minimum information to be communicated to shareholders; (ii) the possibility for shareholders to ask questions before and during the meeting; and finally (iii) lighter participation methods.
Voting by proxy
This is obviously the easiest way to allow shareholders who cannot be present to cast their vote. In this case, the shareholder appoints the person who will represent him/her at the meeting. The shareholder may or may not give voting instructions to the proxy.
With this proxy, the mandating shareholder gives all powers of representation to the proxy.
This way of proceeding allows the shareholder who cannot or does not know how to be present to express his vote. However, this shareholder is only improperly exercising the voting right attached to his shares.
Indeed, the shareholder will not be present during the explanations given at the meeting.
Another written procedure, distance voting, allows shareholders who cannot or do not want to attend the meeting to cast their vote before the meeting date. This is an option reserved for the company’s board of directors to invite shareholders to cast their vote by mail if they cannot attend the meeting.
This technique obviously improves the participation rate at meetings.
This procedure is very frequently used in listed companies. It allows certain shareholders to support the management of the company concerned at a lower cost or, on the contrary, to systematically oppose items on the agenda, such as remuneration policy or the renewal of a director’s mandate.
Finally, the board of directors may provide for the possibility for shareholders to participate remotely and interactively in the meeting and to vote “in real time”, thanks to the electronic means of communication made available to them.
Far from the possibility of voting electronically before the day of the general meeting, this means participating and voting live.
This has its advantages, but also some challenges.
The advantages include the ease with which shareholders can participate without having to travel, and the absence of the cumbersome logistics required to bring together all the shareholders, who may be scattered around the world, in the same place…
The challenges are related to the need to be able to identify the shareholders present with certainty, to offer them the possibility of voting according to the number of votes attached to their shares and finally, to satisfy the obligation to allow the shareholders who attended the meeting to sign the minutes (art. 5:94 CSA for the SRL and art. 7:141 CSA for the SA).
It is therefore important to have professional tools that meet these requirements. It is surprising to see that some bodies recommend the use of tools such as the usual webcasts. These tools make it difficult to meet the legal constraints outlined above.
It should be noted that these alternative means of participation cannot in any way purely and simply exclude the traditional participation of the shareholder who wishes to be physically present on the day of the meeting.
On the contrary, they are additional means made available to the company of which you are a director or shareholder to improve participation in decision-making.
But these means will certainly allow companies that decide to use them to stand out from their competitors and to show how they provide a real response to the challenges of corporate governance. How else can the 8th principle of the Belgian Corporate Governance Code (https://m-url.eu/r-3tiw), which explicitly asks companies to ensure that shareholders have the means and information to enable them to exercise their rights, or which invites them to encourage shareholders to participate in the general meeting and provides the technology and means of communication for this purpose, be translated?