How do the governing body and the equity holders of the company communicate or otherwise engage with one another?
The annual shareholders’ meeting (or additional extraordinary meetings) are the main source of information for the shareholders. The management and the supervisory board inform about the last business year and answer questions of the shareholders. Companies may publish information on their website (e.g. business forecasts, profit warning). Listed companies use ad hoc announcements. Equal treatment of all shareholders under similar conditions is mandatory, therefore separate communication by the management/supervisory board to single shareholders could lead to claims by other discriminated shareholders.
The company must disclose to all of its shareholders, through its website, as well as on the CVM and B3 websites, certain ordinary and extraordinary reports or information, such as the reference form, financial statements, minutes of the shareholders’ meetings and documents necessary for review by shareholders to be able to exercise their voting right in shareholders’ meetings.
It is a common practice in listed companies to hold a conference call with investors right after the release of the annual or quarterly financial statement to discuss the company’s results. It is also usual for the companies to hold meetings or calls with analysts to discuss the company, to enable the analysts to issue their reports on the company. In the case of the companies listed in the Novo Mercado segment, as already mentioned above, they must hold a public presentation on the information disclosed in their quarterly earnings results or financial statements within five business days of their release.
Whenever the company holds a meeting with a specific shareholder to discuss a material fact that has not been disclosed, it is usual to have this shareholder sign a non-disclosure agreement and the shareholder would be subject to a blackout period, during which it would be unable to trade in the company’s shares, until the material information is disclosed to the market.
The call notices for the shareholders’ meetings of publicly held companies must be published at least three times, with the first call notice being published, as a general rule, at least 15 days in advance.*
Publicly held companies are required to disclose on the same day as the first publication of the call notice the manual of the shareholders’ meeting, which contains detailed information about the matters to be discussed and the management proposal for each of the matters that will be voted on.
The supporting documentation for the ordinary shareholders’ meeting (e.g., financial statements, management report, independent auditors report and opinion of the fiscal board) must be disclosed to the shareholders 30 days in advance of the date of the meeting.
In 2015, CVM enacted a ruling on attendance and distance voting at shareholders’ meetings of publicly held companies, whereby shareholders would be able to present proposals of deliberations to be voted on, and to vote on the deliberations of the shareholders’ meeting, subject to certain requirements. Implementation of this proxy voting system was mandatory for the major companies listed on B3 as from 2017 and will be mandatory for all listed companies as from 2018.
* for some specific matters the call notice must be published 30 days in advance.
In addition to communication required under securities law and as described in the answer to question 16, listed companies typically establish a procedure to communicate with shareholders, through public announcements or direct contact. Under the AFEP-MEDEF Code the board is to ensure that the shareholders and investors receive relevant information regarding strategy, the company’s “development model”, significant “non-financial aspects” and long-term outlook. The AFEP-MEDEF Code suggests that the board president or lead director is to handle relations with shareholders. The Middlenext Code provides that the shareholders obtain clear information regarding risks, including those relating to strategy choices and “mal-functioning” of the governance system.
Members of the Management Board usually participate in Supervisory Board meetings and report there on the status of the company. Between meetings, the chairman of the Supervisory Board shall regularly keep contact with the chairman/speaker of the Management Board (CEO) to discuss strategy, planning, risks and risk management and the development of the company. The CEO must regularly report on important events.
In stock corporations, whether listed or not, shareholders are only entitled to ask questions to the management at shareholder meetings, which have to be answered by the management unless the questions relate to business secrets of the company or the answer is otherwise detrimental to the company.
Outside of shareholder meetings, as part of its investor relations efforts, the Management Board may engage in discussions with shareholders at its discretion as long as management keeps business secrets secret and follows the general rule of equal treatment of shareholders. By contrast, the chairman of the Supervisory Board has only a very limited competence as regards Supervisory Board-specific topics to also engage in discussions with shareholders in order not to intervene with the communication policy/strategy set by the Management Board.
The Board is obliged to invite a General Meeting once a year, for the purpose of approving the annual financial statements of the company, and on any other occasion it deems necessary to discuss company matters. Respectively, the shareholders are entitled to request information from the company and to convene a General Meeting in certain occasions, and assuming that they hold a minimum stake in the company (please see more under question 21 hereof).
In public companies, the shareholders relations unit is responsible to ensure the direct and equal information of the shareholders, as well as the exercise of their rights provided by law and the articles of association of the company. In particular, the shareholders relations unit is, among others, responsible to inform the shareholders on any distribution of profits and dividends, any resignation or modification, any deadlines for the exercise of the shareholders’ rights, any information on the General Meetings, on the adopted resolutions and the acquisition or distribution or cancellation of own shares of the company.
The board and the shareholders of a company should communicate with each other from time to time, and if not practicable, at the AGM of the company. At other times, the board should make corporate records and minutes of a company available for shareholders’ inspection, and provide audited accounts comprising of the financial statements, reports of the directors and auditors for shareholders to review prior to the AGM and to approve at the AGM.
Companies are required to disclose various information pursuant to CA, the FIEA, and TSE regulations (see question 16). At the same time, they are encouraged to actively and constructively engage in dialogue with investors and shareholders in accordance with the CGC.
Companies are also encouraged by the CGC not only to disclose information, but to engage in constructive dialogue including financial information briefings, IR conferences, individual meetings and public relations in various forms.
In addition to the general corporate disclosure and attendance to shareholders meetings, shareholders are entitled to certain information rights (subject in some cases to a minimum shareholding in stock companies). Moreover, public companies frequently do road shows, investors days and bilateral contacts (mainly through investor relations), provided that the shareholders’ equal treatment and the inside information regime are complied with.
Communication is generally made via disclosures and the GMS. In certain cases, a shareholder may send letters to the management for consultation, and the management is required to comply with the fair disclosure regulations, which prohibits it from selectively providing information to specific shareholder(s) in the process. Listed Companies often engage in investor relations channels to provide information on the Company’s performance.
The primary forum for communication and engagement between the board of directors and the shareholders of a company is the ordinary shareholders' meeting, where shareholders are entitled to request information regarding the company's affairs to the extent required for the exercise of shareholder rights and subject to confidentiality requirements. Information is otherwise mainly provided by the means described under question 16 above. The board of directors may also engage with individual investors directly but may only do so within the boundaries of the law, particularly the principle of equal treatment of shareholders and where information is shared, restrictions under insider laws and stock exchange regulations relating to ad hoc publicity.
In recent years, there has been a significant increase in the number of U.S. companies reporting shareholder engagement, with only 6 percent of S&P 500 companies reporting engagement with shareholders in 2010, compared to 72 percent in 2017. This engagement takes a variety of forms.
A primary way shareholders engage with a company’s governing body is by submitting proposals for consideration by other shareholders at annual and special meetings of the equity holders and voting on matters put to a vote of the equity holders. As discussed in more detail in response to Question 21, subject to meeting certain requirements, shareholders may present proposals for consideration at shareholders meetings. Shareholders use the proposal process as an avenue to communicate to the governing body and other shareholders about a wide variety of matters related to, among other things, corporate governance, executive compensation, director elections and more general environmental and social issues.
In addition, public companies are required to present certain matters to their shareholders for approval, including, among other things, election of directors, certain material transactions and changes to Charter Documents and non-binding approval of executive compensation (known as “say-on-pay” votes). Some votes by shareholders are binding on the company, while others are non-binding. In either case, the voting results help inform the governing body with respect to the wishes of the equity holders of the company.
Companies also engage with shareholders on a more informal basis by participating on investor calls and in one-on-one meetings with investors. This engagement historically was concentrated in the proxy season, but now takes place year round, and there has been a significant increase in engagement in the proxy “off season,” when companies often engage with investors on the results of the most recent meeting of shareholders, continuing issues of importance to the shareholders and matters likely to be presented at the next meeting of shareholders.
Outside of the proxy process, SEC rules require public companies to disclose in their proxy statements how security holders can communicate with a company’s board of directors (or the company website where such information may be accessed) or, if there is no such process in place, why the board of directors believes not having such a process is appropriate. In addition, companies listed on the NYSE are required to disclose a method for interested parties to communicate directly with the presiding director or with non-management or independent directors as a group. The SEC, NYSE and NASDAQ also require audit committees to maintain procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and the submission by employees of concerns regarding such matters on a confidential, anonymous basis.
The annual general meeting is the most formal annual forum for the board to engage with shareholders. As part of their ongoing investor relations efforts, directors will often undertake 'roadshows' to meet investors in advance of significant events (such as results or transactions).
The UK Corporate Governance Code recognises that the Chairperson has an important role in fostering constructive relations with major shareholders and in conveying their views to the board as a whole and recommends that, in addition to formal general meetings, the Chairperson should seek regular engagement with major shareholders in order to understand their views. Committee chairs should also seek engagement with shareholders on significant matters related to their areas of responsibility.
Boards are also encouraged to explore ways of obtaining the views of smaller shareholders. Accordingly, it is common for directors regularly to engage with shareholders on an informal basis through meetings, but they should ensure that any selective disclosure of inside information is avoided.
Many institutional investors also apply the UK Stewardship Code, which provides a framework through which such institutions engage constructively with investee companies and discuss any departures from recommended practice.
In addition, the EU has sought to foster shareholder engagement through two Shareholder Rights Directors. The first, which came into force in 2007, implemented rules in relation to transparency, proxy voting rights and electronic voting. The Second Shareholder Rights Directive is designed to encourage more long-term shareholder engagement, enhance transparency in the voting process and improve dialogue between companies and investors. It also seeks to make it easier for shareholders to exercise their rights and facilitate cross border voting. Many of the requirements of the directive have already implemented in the UK but it is anticipated it will be implemented in full by June 2019.
On the one hand – with the aim of preserving corporate secrets and the exclusive governance competence vested into the directors – shareholders of joint stock companies are not granted with the right to engage with the board of directors for the purposes of being informed of the business activity of the company.
On the other hand, quotaholders of limited liability companies are granted with the individual right to ask the board of directors for any information on the business activity of the company (Art. 2476, par. 2, ICC).
Since the shareholders carry out their duties during the GA meetings, the governing body engages with them generally within the scope of GA meetings. As it is explained in detail in Question 25, as a rule, the GA can be convened upon the invitation of the governing body. The invitation, which will be published in the Turkish Trade Registry Gazette and on the company website if necessary, is made in the form that is determined in AoA of the company. This invitation must be issued at least two weeks before the date of the GA where the announcement and the meeting date are not counted. Besides, the date and the agenda of the meeting and the gazettes on which the invitation will be published are notified to the shareholders, whose names take part in the share ledger and who provided their address by proving their shares before by submitting the related documents to the company, via registered mail (TCC, article 414).
The shareholders and the board of management of the company both have the right to be present at the general meeting of the shareholders.
The board can, convene general meetings of shareholders. The board must convene a shareholders' meeting at the request of shareholders representing at least one tenth of the share capital of a SA or half of the share capital of a SàRL.
In addition, one or more shareholders representing ten per cent or more of the share capital or ten per cent or more of the votes attaching to all the existing shares may submit written questions to the governing body on one or more of the company's management transactions and, as the case may be, those of controlled companies. In the latter case, the request must be assessed having regard to the interests of the companies included in the consolidation obligation. A copy of the answer must be sent to the person in charge of legally auditing the accounts. Furthermore, according to the 2011 Act, with respect to qualifying listed companies, each shareholder has the right to ask questions with respect to the points on the agenda of a meeting.
In case of transactions within the remit of the board of directors involving conflict of interest, any such transactions in which a director might have had a conflict of interests with the company shall be specially reported at the next general meeting before any other resolution is put to a vote.
For qualifying listed companies, the LSE Principles indicate the company shall define a policy of active communication with its shareholders and shall establish a related structured set of practices. This includes procedures that guarantee the shareholders the power to play their role fully at meetings and to enter into dialogue with the board and the executive management and that relevant questions raised by shareholders before or during a shareholders'' meeting receive the appropriate answers (provided that they are not likely to cause serious harm to the company, its shareholders or staff).
Equity holders in LLCs and JSCs officially engage with company officials at the annual GM where the supervisory and executive boards present their yearly reports. Apart from this, 10% of equity holders in a JSC or LLC may initiate an extraordinary GM in order to discuss any issue of the company`s activity, demand reports from officials or initiate the removal of board members from office.
In between annual and extraordinary meetings equity holders have the right to obtain any information on the company`s activity, usually through the corporate secretary or designated executives.
A board of directors communicates with its shareholders in two principle ways:
- through corporate disclosures (see Question 16); and
- at general meetings of the shareholders (see Questions 22 and 25).
The shareholders of the company receive annual reports reflecting the status of the company. The shareholders may also request to call a special EGM or OGM to discuss specific matters. Furthermore, the board of directors/managers may call for meetings on need basis.