Electronic communication and a virtual cup of tea

POSTED BY Andrew Wallace
15 July 2012

posted in Legislation | Company Law



If you've thought that the ways in which companies communicate with their shareholders and hold their shareholder meetings haven't kept pace with developments in technology, you are right. Current law is to blame. However, that could be about to change.

Under the Regulatory Reform Bill that's currently before Parliament it's proposed that the Companies Act 1993 will be amended to permit:

  • Companies to electronically send documents to shareholders who've elected to receive them that way,
  • Companies to hold shareholder meetings electronically,
  • Shareholders to appoint proxies electronically, and
  • Shareholders to vote electronically.

The Bill's objective is to reduce the compliance burden on business. In the Ministry of Economic Development's view, the provisions will enable increased shareholder participation, reduce printing and postal costs for companies, and bring these processes into line with other commercial communications. The potential benefits were endorsed by submitters, some of whom saw the potential for additional benefits. For example, the NZX considered that the provisions should attract and encourage global investors to invest in New Zealand companies.

The Bill is expected to be passed into law soon. Once that occurs, shareholders should expect to hear from companies asking whether they would like to receive documents electronically. Even if you make that election, it won't necessarily do away with all hard copy materials. The new provisions permit companies to still send hard copies in addition to the electronic copies; which they may wish to do where the documents are particularly lengthy or complex.

The more interesting aspect of the proposals is the holding of shareholder meetings by electronic means.

Virtual shareholder meetings have been relatively slow to take off overseas, but there appears to be a growing trend in the usage of the technology that's available. Here in New Zealand, the uptake will be heavily dependent on the experiences of those involved in running and participating in the first few meetings held by electronic means. Shareholders will need to have confidence in the systems used to host the meetings so that they can be assured access throughout, and also confidence in those running the processes to ensure that the facilities aren't abused.

Much of the criticism levelled against holding virtual shareholder meetings overseas focuses on the way in which virtual meetings can insulate management from shareholders and, the argument goes, therefore reduce accountability.

There's a lot, however, that can be done by companies to mitigate those concerns. There are trusted platforms that have been used overseas for several years, and there are ways to facilitate transparency and ensure that shareholders feel heard. For example, questions submitted can be displayed for all to see, and shareholders can be allowed to ‘like' the questions they would most like to be answered during the meeting, with there being clear protocols in place for the answering of other questions afterwards.

If overseas experience is anything to go by, we shouldn't expect to see companies completely do away with in-person meetings, at least in the short to medium term. The days of the faithful cup of tea and scone are not yet up. Rather, electronic participation will be available as an add-on to facilitate greater shareholder participation.

Ultimately, it will be up to the companies wanting to enjoy the benefits of electronic communications to get it right. They'll need to source or develop hosting systems with appropriate authentication, security and back-up facilities, develop appropriate processes for the use of those systems (some of which may require constitutional changes, others which may be dealt with by policy documentation), and then communicate all this to shareholders in a way which instils confidence.

This article was first published in the Your Law column in the Sunday Star Times on 15 July 2012

POSTED BY Andrew Wallace
15 July 2012

posted in LegislationCompany Law



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