Virtual AGMs in Taiwan: no pandemic required

Regulatory decision to allow fully virtual AGMs as convention will ironically be of limited use during a pandemic, writes Neesha Wolf, Research Director for Taiwan and Malaysia.

New rules on virtual AGMs drafted in the wake of COVID-19 are drawing investor ire because they allow AGMs to be fully virtual in the absence of exceptional circumstances, and limit what shareholders can decide during the meeting.

After the pandemic wreaked havoc on Taiwan’s 2021 AGM season, regulators updated the Company Act and Regulations Governing the Administration of Shareholder Services of Public Companies to include provisions on virtual and hybrid shareholder meetings. These are defined respectively as those held only by video conferencing without a physical meeting; and as physical shareholder meetings with the assistance of video conferencing.

Under the new rules which came into effect in March 2022, issuers may make changes to their Articles of Incorporation to allow virtual meetings without any limitations on the circumstances in which they can be held. Regulators inserted guardrails in an apparent effort to prevent Taiwan’s notoriously inventive blockholders from gaining an upper hand in battles for management control under the new rules, an intention that ACGA understands and supports. However, the approach they took was unorthodox.

Most markets seek to prevent abuse of the virtual AGM mechanism by setting limits on the circumstances under which it can be used, for example, only in the case of natural disasters or pandemics. However, Taiwan regulators decided to approach the issue by limiting the content of the meeting. For example, the rules do not allow virtual meetings to be held when the agenda includes a director election, director dismissal, or mergers and acquisition activity. For hybrid meetings, director elections are allowed, but only if they are uncontested.

While we understand the regulators’ intention, the implications of such a narrow approach are readily apparent. Consider the context of another pandemic making a virtual AGM necessary. If directors were up for election, it is unclear whether the existing directors would have to continue to serve beyond the end of their terms, and for how long. In the event that a director was misbehaving, it is unclear how shareholders could take steps for his or her dismissal.

Investor backlash

We know of at least one major international investor who has voted against Article amendments by an issuer which sought to conform with the new rules. Among the reasons given by the investor for the veto was it was not clear why the company should have the ability to hold virtual-only meetings, how shareholder rights would be protected and there was no mechanism for ending the ability to hold virtual-only meetings such as a set expiration date or future vote.

ACGA sees great value in shareholders attending AGMs in person and we do not want to see this option taken off the table. We also see value in hybrid meetings, but do not believe the online component will ever be as effective as the in-person part. Any hybrid meeting must allow for full two-way communication and real-time voting for shareholders participating electronically. Companies should not be allowed to restrict physical access to the venue for any shareholder who wishes to attend in person. Directors should be required to attend the physical venue (unless travel restrictions forbid or make this extremely difficult).

We only see value in fully virtual meetings in exceptional circumstances, such as a health emergency when group gatherings are not permitted. Virtual meetings should not become a substitute for hybrid or in-person meetings. If held, they should also offer full two-way communication and real-time voting. There should be no restrictions on the content of hybrid or virtual meetings.

The new Taiwan rules include real time voting and Q&A, with the Taiwan Depository and Clearing Corporation currently the sole platform provider for virtual meeting services.

We hope regulators in Taiwan have a rethink on the rules and limit the circumstances under which virtual AGMs can be held. There would then be no need to restrict the agenda items—and shareholder interests would be better served.