Annual General Meetings (AGM) or annual shareholder meetings are held in the first months of the year for corporations in the region. These meetings usually address a typical agenda with topics such as: review of the main financial statements, a management report, the external auditor conclusions and its selection for the new term, the profit distribution plan, the appointment of new board members, and other matters included in each company’s articles of incorporation and the commercial laws of each country. Other topics requested by the shareholders themselves or proposed by management, such as strategy updates, major investment plans, corporate projects, among others, are also addressed. Without a doubt, these are the most relevant meetings between the shareholders, the management representatives (management team) and the board of directors). This meeting is also a milestone that marks the end of one period and the beginning of another for board members and can therefore serve as a point of adjustment in the organization’s turnaround.
In this sense and considering that shareholders are increasingly taking on a more active role and seeking various ways to share their expectations with the organization’s management, as indicated in the article Shareholder Engagement Inside and Outside the Shareholder Meeting – European Corporate Governance Institute, the appointment of directors who are aligned with these expectations takes on utmost importance, since they have the fiduciary duty to represent the shareholders on the board of directors’ sessions that are periodically held in organizations. Among the issues that shareholders and institutional investors are focusing their attention on are:
- The inclusion of independent directors (i.e., non-equity and non-executive directors)
- Gender equity and diversity on the board (incorporating more women in these roles and allowing the participation of stakeholders who have not historically been part of these spaces)
- The greater allocation of time and attention by board members to each board meeting which can be affected by participation on too many boards (overcommitment or overboarding)
- Executive compensation that is more aligned with long-term goals.
In fact, in BlackRock’s 2023 Investment Stewardship Annual Report, these issues among others have influenced its abstention or rejection from electing directors at more than 1,000 companies in the region that are part of its representative portfolio. Other topics such as more open and transparent communication with stakeholders (disclosure) and engagement with them (stakeholder engagement), as well as the company’s role in the impact of its operations on society and vice versa (sustainability and dual materiality) are also currently attracting significant investors’ attention.
In addition to these interests, there are challenges that organizations must face led by their boards as part of today’s dynamic environment. These include topics such as strategy execution, regulatory and policy compliance, consideration of new technologies, and a focus on human talent, among others. In this line the Harvard Law School Forum on Corporate Governance publication, Board Practices and Composition: 2024 Edition included board excellence practices, emphasizing the training and assessment processes for directors as one of the most promoted practices, as their skills, experience, judgment, core business knowledge, environment understanding and independence become crucial when it comes to monitoring, supervising, and providing comprehensive support to the management team. With this in mind it is important for organizations:
- Mapping the composition of their board of directors in terms of: profession, technical expertise, and other topics (for example, corporate governance, compliance, risks, etc.), the age of their members, limiting overboarding (the number of boards of directors of other companies on which a director serves), turnover, and other factors to determine if there are opportunities for improvement or adjustment.
- Implement a periodic training plan for directors, either initially as a director (onboarding) or as a refreshment for active directors. This plan includes topics such as corporate governance, compliance, cybersecurity, technology, among others, which will contribute to improving their skills, as well as the dynamics and effectiveness of the board of directors.
- Disposing evaluation processes for the board of directors and its members (individual assessments) guided and supported by an independent external advisor that will allow them to define concrete action plans aimed at closing the identified gaps.
- Keep in mind the possibility of incorporating independent board members clarifying that the objective is not to have a completely independent board as this would exclude all the knowledge of the executive members but to ensure the participation of a representative percentage of independent members, free of conflicts of interest, who provide feedback to the organization from an external position without seeking any particular benefit and making decisions based primarily on the “Duty of Loyalty.”
A criterion that, in addition to those indicated above, is commonly used in the United States when identifying and selecting directors is based on the concepts of Depth (experience in a type of company or industry) and Breadth (experience in different companies or industries), as indicated in the publication What Makes a Corporate Board Member Most Influential? – Kellogg Insight.
Although we have only named some of the most relevant characteristics of the board of directors, surely each organization identifies the aspects on which it would like to place greater emphasis. In any case, it is necessary for shareholders to consider the Annual General Meeting as a key moment to review the composition of the board of directors, since having a well-formed and balanced board will allow the organization to consider the shareholders’ concerns but also those of other stakeholders (employees, suppliers, customers, society, state), the dynamics of the environment and the technological advances seeking a balance between economic profitability and the externalities that may be caused by the core business, seeking the permanence or sustainability in the long term of the entire ecosystem that is generated around organizations.
