Electronic communications

In one of its most significant changes, the Act allows for listed companies to change their Articles, amending the default position for shareholder communications from hard copy (paper, in other words) to electronic delivery.  The change is subject to shareholder agreement at a general meeting, but is thereafter binding on all members.
Electronic communication, or e-comms, was allowed under existing company law, but the default requirement was for a hard copy o be sent to all shareholders who had not elected for e-comms.  Shareholder inertia on the issue resulted in the production and postage of significant volumes of reports and accounts that went largely unread, or were deposited directly into the waste-paper basket.  Under the new rules, paper documents need only be produced for shareholders who specifically elect for a hard copy.
The e-comms provisions are the first to come into force, in January 2007.  A small number of companies Articles may already contain the above provisions but the majority of companies will need to propose a resolution at a general meeting.  A resolution to obtain members’ agreement to change the Articles is subject to Chapter 3, Part 3 of the Act.  Schedule 6 of the Act applies to documents or information sent or supplied by traded companies, with Part 3 covering communications in electronic form and Part 4 communications via website.
Once the Articles have been amended, companies will need to write to shareholders, giving them the option to provide an electronic address or request a hard cop of future communications.  The e-mail addresses or hard copy elections of the individual shareholders must be recorded and noted for future communications.
Shareholders who do not respond to that initial request within 28 days will be taken to have agreed to e-comms.  Those who do not respond, or who fail to provide and electronic address, must still be sent a notification of future meetings of the company.  That notification must advise the shareholder that the company is having a meeting, and should include the details of a website where full information can be obtained.  The notification must also remind the shareholder of his or her right to request a hard copy of the documentation.
The company can repeat is e-comms invitation to hard copy electors, but not more than once a year.  If the invitation is included with the notice of the AGM, the timing of both the meeting and mailing will need to be carefully monitored.  If the subsequent invitation is sent within 12 months of the previous invitation, the non-respondents are not taken to have agreed to e-comms.
From a corporate governance or stakeholder relations perspective, companies might wish to continue sending the notice of meeting and proxy card to non-respondents.  Companies would not be required to send the full report and accounts to non-respondents, unless these documents were subsequently requested.
Part 13, chapter 3 specified that notice of a general meeting can be given in hard copy form, electronic form, via a website, or partly by one such means and partly by another.  When a notice is posted on a website, notification must be given to members which states that it concerns a notice of a company meeting, the type of meeting, and specify the place, date and time.  The notice must be available on the website from the date of notification to the conclusion of the meeting.  The notice must state the general nature of the business to be dealt with.
Poor planning or execution of the introduction of e-comms to shareholders could significantly reduce its effectiveness and increase costs.  In order to minimise the risk and cost of the initial communication and the subsequent capture of elections and electronic addresses, companies should ensure that their registrars are closely involved in the planning from an early stage.

Companies that wish to obtain the benefits will need to:

• Check the current provisions in the company’s Articles
• Review the agenda for the 2007 AGM and timetable for subsequent mailings
• Submit a resolution to members in general meeting, if required

They should then liaise with their registrar on:

• Writing to shareholders confirming the resolution has been passed
• Inviting shareholders to make an election for electronic or hard copy communications
• Informing shareholders of the consequences of failing to respond to the invitation
• Recording e-mail addresses of shareholders electing for e-comms
• Recording those shareholders who have elected for hard copy communications
• After 28 days, recording all other shareholders as non-respondent electors for e-comms

Finally, they should review and update the communication schedule and timetable to:

• Incorporate the new Act’s requirements
• Review the volume requirements and audience for the report and accounts
• Redraft the mailing matrix to incorporate e-comms
• Define the website requirements and obligations
• Ensure the timetable for the 2008 AGM mailing is not less than 12 months after the 2007 mailing if inviting hard copy shareholders to elect for e-comms

Andy Cotter, Head of Industry, Computershare

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