Sourced directly from the AICD Feature Magazine available online. This article first appeared in Listed@ASX magazine, from the Australian Securities Exchange.
Is the traditional annual general meeting nearing extinction? Domini Stuart considers whether it is time to evolve, scrap or replace this longstanding tradition.
In 2013, Australia’s top 300 companies drew just 0.13 per cent of their security holders to their annual general meetings (AGMs). The top 50 companies attracted a tiny 0.08 per cent. Attendance has been in decline for many years and there are very good reasons for staying away.
“The most obvious disincentive is that you are unlikely to hear anything new,” says Bill Koeck MAICD, a partner in the corporate group of law firm Ashurst Australia. “Web traffic statistics compiled by Google in the United States show that the material sent out ahead of the AGM is of little interest to investors since it is typically stale by the time it is published. These days, a well-managed company is defined as one which continuously discloses material information.”
“AGMs are backward-looking in their agendas when the attendees want forward information,” agrees Fiona Harris FAICD, company director and chairman of Barrington Consulting Group. “But the law prevents meaningful forward information being provided unless it is carefully caveated.”
These days, four or five months is a very long time to wait for a report on end-of-year financials. Many chairs and CEOs are adding what is effectively a first quarter update by including more recent information in their presentation. Sending a copy of the presentation to the Australian Securities Exchange (ASX) just prior to the meeting addresses the risks associated with disclosure.
“The problem with this is that anyone who cannot physically attend a meeting must use an outdated proxy appointment process, so they could be voting without the benefit of this new information,” says Harris. “This introduces a potential inequality in the information you have available when you are making your decision.”
Getting to a meeting can involve a lengthy journey and, as they are held on a working day, they have always attracted a disproportionately high percentage of retirees. AGMs can also be extremely boring.
“Just the formality of going through the director re-election process can be enough to kill a meeting,” says Greg Dooley GAICD, managing director of Computershare Investor Services. “You see people leaving in droves.”
Interacting face-to-face
However, aside from legal and contractual obligations, AGMs do play one vital role. “It is the only opportunity retail shareholders have to eyeball the board and ask questions they feel are important,” says Amanda Wilson MAICD, managing director of governance advisory firm Regnan Australia. “From Regnan’s perspective, one of the many factors we consider in environmental, social and corporate governance (ESG) research and engagement is a company’s relationship with stakeholders and its social licence to operate.
“It is arguable that AGMs provide the one means by which boards can receive unfiltered messages about such matters.”
Not all questions will be astute or even relevant but, for a shareholder with a genuine grievance or concern, the AGM provides a public forum.
“I have been at numerous meetings where a particularly aggrieved shareholder has challenged the board,” says Dooley. “Doing this face-to-face in front of other shareholders and the media makes this a very powerful experience.”
The AGM may also be the only time the board and senior management see and interact with the company’s owners. “The people they meet out in the foyer may not be entirely representative but they are often supportive and complimentary, and they can give an insight into anything of particular interest to the group as a whole,” says Kirsten Mander FAICD, chair of the Victorian Assisted Reproductive Treatment Authority and an experienced general counsel and company secretary.
Catching up
The AGM has its roots in an era of horse-drawn carriages, and it has a long way to go to catch up with 21st century technology. In the meantime, organisations are doing the best they can.
“Big companies in particular are being very proactive for example, by distributing materials electronically, capturing shareholders’ questions before the meeting and engaging with the institutions,” says Koeck.
Live webcasts have proved less than successful, with too few viewers to justify the cost. Many of the companies that pioneered use of the technology have reverted to the much cheaper option of uploading a recording of the meeting. However, across the companies whose share registries are managed by Computershare, around 30 per cent of proxies are now coming through online. There has also been a significant take-up of technology which allows votes to be cast and counted instantaneously at the meeting.
“I think this has been driven, at least in part, by the introduction of the two strikes rule,” says Mander. “Since then, many company secretaries have decided that they really need to count the votes rather than rely on a show of hands. If people are not voting electronically this really slows the whole process down.”
But even the positive changes may be no more than tinkering around the edges when a total overhaul is needed.
“I believe it is time to step back and give careful thought to what today’s AGM really needs to achieve, and it seems to me there are two things,” says Harris. “First there is accountability for the year that was. I think this part, including consideration of the financial report and the more generic voting items, should be dealt with very soon after the accounts are released. A webcast meeting and direct voting on all items should then be possible.”
She adds: “The second aspect relates to engagement, communication, and providing people with the opportunity to ask questions. This could be held at a later date, perhaps around the half year. Again it should be a meeting that people can attend electronically.
“Questions could be submitted and would be responded to and forward plans could be communicated. If we really wanted to make it meaningful, we would have some protections in place to allow the board to speak more freely without risking prosecution.”
Legal uncertainty
There is nothing to stop a company from running a relatively short, formal AGM and then a separate meeting for shareholders.
“This could rotate from state to state and focus on genuinely interesting and informative aspects of the business as well as giving shareholders a chance to ask questions,” says Mander.
Technically, there is also nothing to stop organisations from running a virtual AGM.
“In the US, some companies have combined webcasting with voting,” says Dooley. “This allows virtual attendees to listen to the debate online then cast their vote rather than having either to vote by proxy two days before the meeting or turn up in person.”
Some spectacular failures in technology have blighted this progress overseas but, in Australia, there is an even bigger deterrent.
“In 2000, the law was changed to permit companies incorporated in Delaware, which is over half of America’s publicly traded corporations, to hold virtual-only and hybrid shareholder meetings,” says Koeck. “In Australia the position is much less clear. Corporations law says you can have a meeting where people are in more than one place but this would not extend to individuals participating in a listed company AGM from their home or office.”
In a 2012 discussion paper, the Corporations and Markets Advisory Committee (CAMAC) raised the question of whether legislative amendment is needed to allow shareholders to participate and vote online. CAMAC was dismantled by the Abbott government and, while its responsibilities were handed over to Treasury, as yet there has been no report. Until the issue is resolved, it is unlikely that any organisations will be prepared to put the legislation to the test.
“The last thing anyone wants is for a contentious issue to be decided by virtual attendees only to have someone mount a legal challenge on the basis that those votes do not count,” says Dooley.
Koeck also flags challenges in terms of procedure. “Proper procedure is fundamental to a well-run meeting, and I think this would be even more important in a virtual environment.
“For example, if you do have much higher levels of engagement there might be thousands of questions, including who knows how many from people who would feel too intimidated to speak out in front of a live audience. So how do you decide which questions to take? And would follow-up questions be allowed, as they generally are now?” he says.
“There really is potential for chaos and a lot that needs to be thought through to formulate a new set of rules to ensure that an electronic meeting is conducted fairly and efficiently.”
Before submitting a response to CAMAC’s discussion paper, Ashurst Australia canvassed the opinions of directors, company secretaries and general counsel from over 25 leading ASX-listed companies. A recurring concern was the role of proxy advisers.
“I think there is still quite a widespread belief that proxy advisers do not know enough about the issues, or the companies’ views on those issues, and that they are effectively disenfranchising the institutional shareholders who appoint them,” says Koeck.
“The proxy advisers say, quite rightly, that if companies engaged with them throughout the year rather than only in the busiest two months, they would have more time to develop a deeper relationship. But there might still be room for something like the Stewardship Code that was recently introduced in the UK. Many of our participants did say they would like to see some kind of regulation or policy to provide transparency and restore the balance between the proxy adviser’s role and the responsibility of the shareholders to exercise their own judgement,” he says.
Some superannuation funds might take the matter into their own hands. “There is a sense that they want their voices to be more widely heard,” says Dooley. “Some are already taking steps towards making their votes more transparent and, in discussions, we have even heard talk of their attending meetings in person. That would really shake things up.
“At the moment, there are usually so few votes on the floor that the outcomes are known before the meeting starts. If large shareholders shifted that dynamic, the meetings would be far more strategically important as well as a lot more interesting, although that is one significant change to the AGM that not all companies would want to see.”
