Ideas for better AGMs
This article appeared in the July 2014 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
By Stephen Mayne, ASA
The Australian Shareholders' Association (ASA) is the only organisation in Australia that systematically engages with companies, publishes voting intentions, aggregates proxy votes and then actively participates in debate and voting at annual general meetings.
(Editor's note: In association with ASX in late August and September the ASA will be holding a National Roadshow titled The Investors' Big Day Out - a valuable event for retail investors. Visit the ASA website for more information.)
Although there are a number of proxy advisory firms that provide private voting advice to institutional investors, the ASA is the only organisation servicing retail investors and does so in a much more public way, hence the importance of the AGM to its activities.
The association strongly supports the retention of the physical AGM for listed companies because it often provides the only opportunity for retail investors to engage with company boards and management directly.
However, given declining attendances at AGMs since the 2008 Global Financial Crisis, companies need to be more focused on "putting on a show" that engages shareholders, rather than treating the gathering as a compliance event.
The association has long observed that companies that go to the trouble of reasonable catering or providing "shareholder showbags" are usually rewarded with more vibrant and better attended AGMs.
There is no doubt that some AGMs can be hijacked by special interests or long-winded dissertations on irrelevant issues such as customer complaints. Anyone who has sat through a four-hour Telstra or BHP Billiton AGM in recent years knows that it is not an enjoyable or constructive experience.
However, untidy public discussion is no reason to jeopardise the key function of AGMs, which is an accountability mechanism for owners and their agents on the board.
More AGM debate needed
In recent years, the bigger problem of AGMs has been a lack of debate - ASA representatives are often the only speakers. AGMs would be a lot better if brokers, fund managers and research analysts took the opportunity to ask well-researched questions in public. Instead, these professional players use other forums or direct engagement to access information.
The best-run AGMs will begin with 20 to 30 minutes of formal presentations and conclude after about an hour of debate featuring contributions from a range of speakers. Chairs should be less tolerant of long-winded speakers pursuing irrelevant issues.
However, if a company has run into trouble, AGMs can still be thoroughly worthwhile after much lengthier debate because the meeting is most important when it comes to holding poorly performing boards to account.
The worst AGMs conclude after just a few minutes when companies do not take the trouble to make detailed presentations and then shareholders decline to engage in debate.
Managing the November deluge
Shareholders can find the AGM season extremely taxing because so many meetings occur in the peak months of October and November. Indeed, there were 1,280 AGMs in November last year, with more than 200 on the last day.
Larger listed companies are progressively moving to webcast their AGMs, which is an important development that can be delivered in a cost-effective manner. However, there is still no ability for shareholders to participate in AGMs remotely.
If analysts can ask questions on conference calls, it should be possible for retail investors to ask questions remotely during debate at AGMs. This concept is no different from the age-old process of talkback radio, although priority should obviously be given to registered shareholders in the room.
Avoiding the 'dead rubber' effect
If AGMs are to be energised, one possible reform would be to extend voting - both direct and through proxies - until after the AGM has concluded. At the moment, the vast majority of votes are submitted before the proxy voting deadline 48 hours before the AGM.
This has the effect of turning the AGM into the Davis Cup equivalent of a "dead rubber" because the voting decisions have already been made. The political equivalent of this would be Bill Shorten and Tony Abbott having their televised leaders' debate on the Monday after a federal election.
Boards will take AGMs more seriously if they don't go into them knowing the voting outcome and that there is a possibility their performance could influence the final poll results.
Polls versus a show of hands
The ASA historically has defended the use of a show of hands at AGMs so the views of those shareholders who take the trouble to attend can be reflected.
However, given that only a tiny proportion of shareholders participate in the show of hands, it is preferable if all items are determined by a poll, as this also allows any undirected proxies to be voted. A majority of the ASX 100 companies now do this, while the smaller end of the market remains dominated by the show of hands.
The ASA regards the aggregation and voting of undirected proxies on behalf of retail investors as one of its most important emerging functions. It receives proxies over about $5 billion worth of stock each year, with the vast majority being undirected. This is because many thousands of Australian investors do not feel confident or informed enough to direct their votes on all resolutions at AGMs.
Given that participation in Australia remains disappointingly low at about 6 per cent of all registered shareholders, there appears to be a major problem with planners, accountants, brokers and fund manager not delivering proxy forms to retail investors.
Even in the recent Westfield Retail vote only 12,000 out of 86,000 shareholders participated, despite the enormous amount of publicity and the fact that investors were sent three separate ballot papers.
One way to reduce the disappointing no-show by an average 94 per cent of all shareholders is for listed companies and the financial services industry to facilitate the greater use of standing proxies to appoint the ASA.
Unfortunately, many shareholders still just sign the proxy form and send it back to the company, thereby putting more undirected proxies in the hands of the chairman, who always votes them in favour of board-proposed resolutions.
Annual elections for directors
The ASA notes that the likes of BHP Billiton, Rio Tinto and News Corporation have now all moved to annual elections of directors because of legislative provisions in the US and UK.
Although this notionally increases the level of accountability on the full board, it also reduces scrutiny on individual directors.
If a move to annual elections in Australia had the effect of allowing companies to deal with the election of directors as one item of business, it may not be a good move. At the moment, well-governed companies require directors up for election to explain their credentials to shareholders.
Under Australian law, each item of business must be dealt with separately and shareholders have an opportunity to comment on any matters related to the operation of the business.
There is no such protection in the US, where a chairman will often only allow one brief session for questions at the start of a meeting with up to 20 items of business.
Warren Buffett is an obvious exception to this rule as he attracts huge crowds to his Berkshire Hathaway AGMs and allows questions to run for many hours.
One of the best features of an AGM is the opportunity to speak to executives and directors after the meeting. Shareholders who do this will often get a strong sense of how their company is performing.
About the author
Stephen Mayne is the Australian Shareholders' Association's Policy & Engagement Coordinator. The ASA both stands up for shareholders' rights and educates investors. In association with the ASX in late August and September they will be holding a National Roadshow titled The Investors' Big Day Out. Visit the ASA website for more information.
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