Building stakeholder confidence at the AGM

IT’S the season again – not for festivities, but for annual general meetings (AGMs), where companies meet and communicate with shareholders.

Often, companies use AGMs as a platform to showcase past and present performance. The past year was fraught with concerns over global geopolitical risks and higher-for-longer interest and inflation rates, in addition to rapid digitalisation and growing emphasis on sustainability. Hence, beyond regular reporting, companies should leverage the AGM to demonstrate their ability to navigate a complex environment and articulate a strategic direction for the future.

A clear and meaningful discourse on the following topics at the AGM can help inspire confidence and deepen trust with stakeholders.

ESG risks

Sustainability is a key focus for consumers, investors, governments and enterprises. With Singapore making strides toward its Green Plan 2030 and transitioning to a low-carbon economy, companies are expected to embed environmental, social and governance (ESG) factors into their business decisions and communicate their corporate sustainability narratives.

Climate reporting has been mandatory for listed companies since financial year 2022, where issuers must include climate disclosures in their sustainability reports on a “comply or explain” basis. Even large non-listed companies will also be required to make climate disclosures come 2027.

EY studies have found that Singapore-listed companies vary in their progress in climate reporting. As well, investors and companies may not be aligned on the strategy for long-term sustainable value, or whether current reporting offers enough insight into the strategy. How do boards demonstrate that their organisation’s climate disclosures are driving concrete climate actions, rather than a compliance exercise? How do the climate actions impact the organisation’s long-term strategy?

Boards can tap the AGM to articulate their strategies for sustainable value creation, highlighting how the business is run sustainably, their plans to tackle material ESG risks, and how embracing the ESG agenda doesn’t just fulfil regulatory requirements, but also gives the company a competitive edge.

In highlighting ESG success stories, boards should also be transparent about the setbacks and the remedial actions taken.

For this, an ESG materiality assessment may be useful, both in providing insights into the company’s ESG performance and laying a road map for future initiatives. This can help shareholders assess how well the company is faring in its climate-related disclosures and net-zero commitments, and whether its sustainability narrative is robust.

Generative AI strategy

Apart from sustainability, companies must grapple with the megatrend of digitalisation, especially the rapid development of generative artificial intelligence (AI). Generative AI has captured the public imagination in the past year and looks set to be a transformative force in the business landscape.

At the AGM, boards can share more about the company’s generative AI strategy, including how it would impact the company’s business processes, industry landscape and competitive environment. If the business plans to deploy generative AI, it is crucial to explain the potential return on investments, as well as how and when the investments can be expected to be monetised.

The impact on human capital needs to be addressed too. The 2023 EY Work Reimagined Survey found that while 94 per cent of employers in South-east Asia are already using or intending to adopt generative AI this year, only a quarter aims to provide generative AI-oriented skills training.

Hence, how the organisation plans to address the skills gap and manage the talent challenges that come with technological transformation is key. A clear plan that delineates measures to support employees with generative AI adoption will help build confidence in the company’s AI strategy.

Boards also need to convey the responsible use of generative AI, taking into account the ethical and legal implications, as well as how AI-related risks, including data privacy, security and regulatory compliance, are being managed.

There may be uncertainties currently in the adoption of generative AI. However, a proactive discussion of the company’s strategy to leverage the technology’s potential while managing the associated risks and ethical considerations can help to manage shareholder expectations, inspire buy-in and showcase the board’s foresightedness.

Cyberdefence approach

While generative AI creates opportunities to enhance cyberdefences, it can introduce new vulnerabilities and provide malicious actors with new capabilities to execute attacks more quickly.

With the escalating frequency and severity of cyberattacks, the cyber-resilience of companies has become a major concern. Protecting a company’s digital infrastructure is no longer just the IT department’s responsibility, but a firm-wide, board-level challenge.

Investors understand this: increasingly they are considering a company’s cybersecurity risk profile before making investment decisions. The AGM is an opportune platform for boards to present their cyberdefence strategy and highlight features of their cybersecurity risk management framework.

How is the board being apprised of cybersecurity risks, and how are these risks factored into its decision-making process? How is management adapting its cyber-response playbook for an evolving threat environment? Addressing these areas underscores the board’s proactive approach to persistent cybersecurity risks.

For the above areas, boards must be mindful that they do not reveal sensitive information while strategically sharing their accomplishments and plans. A prudent approach would involve crafting a high-level narrative that outlines the company’s overarching goals, broad-stroke plans and key performance indicators without divulging proprietary insights or methodologies.

By sharing information in this manner, companies can achieve a balance between transparency and safeguarding of trade secrets, thereby preserving their competitive edge.

Undeniably, this annual gathering of shareholders and the board is an invaluable opportunity to showcase the organisation’s ability to withstand challenges and adapt to changes in today’s uncertain environment. By communicating their strategies for creating sustainable value and demonstrating resilience in managing risks, boards can reassure shareholders of their organisation’s readiness to navigate through a volatile landscape.

The writer is Singapore head of assurance at Ernst & Young. The views here are the writer’s and do not necessarily reflect the views of the global EY organisation or its member firms.