Wake-up call for Luxembourg Corporate Law to become digital and sustainable
From a quick Covid-19 crisis fix to best practice in the world
The office is the only efficient working place! A successful meeting has to be face to face! These are the kind of most persistent myths, which we have blindly believed in, that have been definitely cracked by the Covid-19 pandemic. While many corporations have spent years working on their digital transformation journey, the urgency of the situation has forced them into an improvised use of digital solutions, and surprisingly it works.
Suddenly the remote working and the digital cooperation that many were reluctant to implement, has become the new normal and has put on the table the importance of having an efficient strategy and solution to manage teams and processes digitally, while safeguarding security and compliance with rules and regulations.
A good example of illustration is the operation of the traditional annual general meetings of corporations and associations which are to be hold now. How to run them without physical attendance in an efficient and secure way, while ensuring and encouraging active shareholder participation?
Luxembourg is paving the way for digital annual shareholder meetings
Luxembourg has reacted quickly by introducing the Grand Ducal regulation (Règlement Grand-Ducal) of 20 March 2020 establishing a number of special and temporary rules concerning statutory meetings. During the Covid-19 restriction period it is permitted to hold shareholder and board meetings via telephone, video-conference or via a digital platform, even if the articles of incorporation do not foresee remote meetings.
Other countries are also legislating into a similar direction in order to facilitate companies to run their annual shareholder meetings on a pure remote basis. While it seems that the temporary emergency fix is a “solution B”, I think we should reflect on whether, at the end of the day, the temporary fix has not the potential to develop into a best practice.
Was the status quo really a best possible world? Clearly no, the legislation and procedures around shareholder meetings come still from another century. It is very formalistic and burdensome to participate in a shareholder meeting, resulting, in certain situations, in poor presence and representation.
A situation that has motivated the European rule makers to launch Directive 2017/828 aimed at encouraging long-term shareholder engagement to enhance transparency between companies and investors and facilitate the exercise of shareholder rights: "Effective and sustainable shareholder engagement is one of the cornerstones of the corporate governance model of listed companies, which depends on checks and balances between the different organs and different stakeholders. Greater involvement of shareholders in corporate governance is one of the levers that can help improve the financial and non-financial performance of companies."
The “Covid-19 solution” has the potential to revolutionise the exercise of shareholder rights in shareholder meetings. While tele- or video-conference pose the problem of a proper audit trail and it remains cumbersome to have a defined time window to respect, digital platforms have the potential of giving raise to a new era.
Imagine there's a possibility to log-in safely from your home into a shareholder meeting, where all relevant information can be consulted at any time for several days. Imagine you can ask your questions on the platform for management to be responded. Imagine you can log-in and log-out at your ease and have several days to think and express your vote.
Imagine you post your vote from home, no need for a complicated proxy process. Imagine, after the closing of the votes, within a day, you can consult and download the minutes of the meeting. And if John Lennon, at the time, would have had these technology possibilities at his fingertip, the lyrics of his legendary song “Imagine” might have completely changed. Joke aside!
No! It is not too good to be true. It is temporarily reality.
Currently shareholders or members of associations are taking advantage of digital platforms featuring these convenient possibilities. To be able to run virtual shareholder meetings, companies have to make sure that high governance standards and safeguards are upheld when operating online.
At Governance.com for example, our Meetings solution allows companies to manage all aspects of organising and running their remote meetings in which attendees can exercise their rights and place their votes on a secure portal.
That’s why I am very proud that Governance.com is collaborating together with ALFI, the reference association in the investment fund industry, to lead digital transformation. They will be using our Meetings solution to connect with their 1,500 members in a secure way; safeguarding all meetings documentations; allowing participants to exercise their voting rights and enabling them to have their questions asked and answered safely.
Digital Board and shareholder meetings, a sustainable concept
Leading futurists argue that the Covid-19 crisis pushes the world to reflect more thoroughly about the sustainability of our lifestyle and our way of running businesses. Would a final legislation allowing shareholder/board meetings to be held fully remotely contribute to a more sustainable world? I strongly believe, it undoubtedly would, due to three main benefits:
1. Easy access
With virtual meetings, shareholders won’t need to travel to execute their rights, which is one of the main challenges for the shareholder to participate in meetings. Now they will be able to participate from anywhere around the world having a comfortable time window to express their votes.
2. Costs efficiency
Planes, accommodations, catering, venue…expenses for companies and for shareholders that can be rationalised through virtual meetings.
3. CO2 footprint
I really believe that the sharp reduction in CO2 emissions during the Covid-19 crisis will definitely contribute to prioritise the implementation of virtual board/shareholder meetings in all company laws. A massive reduction of the CO2 foot print of corporate governance is in our reach.
Luxembourg to take the lead in digital transformation
At this point, we have the “opportunity” to learn the eye opening lessons from the Covid-19 crisis. One is that companies and law makers should step ahead on digital transformation of corporate governance rules and laws.
If before the crisis, I already firmly believed that digital transformation was a game changer for a company success, now I go a step further: a country which does not fully embrace digital transformation won’t be able to succeed.
That is why we should highlight the benefits of virtual annual meetings and consider this option as a post-Covid-19 long-term regulation. I hope Luxembourg takes the lead on the way on a sustainable digitalisation of society organisation, not only, but also for shareholder/board meetings.