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Why the AGM matters

WHY THE AGM MATTERS

By Stephen Mayne

The Australian Shareholders’ Association is the only organisation in Australia which systematically engages with companies, publishes voting intentions, aggregates proxy votes and then actively participates in debate and voting at AGMs.

Whilst there are a number of proxy advisory firms which provide private voting advice to institutional investors, we are the only Australian organisation servicing retail investors and do so in a much more public way, hence the importance of the AGM to our activities.

ASA strongly supports the retention of the physical AGM for listed companies as it often provides the only opportunity for retail investors to engage with company boards and management directly.

However, given declining AGM attendance numbers post the GFC, companies need to be more focused on “putting on a show” which engages shareholders, rather than treating the gathering as a compliance event.

ASA has long observed that companies which 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 4 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.

In recent years, the bigger problem of AGMs has been a lack of debate – ASA representatives are often the only speakers at AGMs.

AGMs would be a lot better if the 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 commence with 20-30 minutes of formal presentations and then conclude after approximately 1 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 AGM is most important when it comes to holding poorly performing boards to account.

The worst AGMs conclude after just a few minutes when companies don’t 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 meeting occurs 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 talk back 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 the 2016 Federal election.

Boards will take AGMs more seriously if they don’t go into them knowing the voting outcome and there is a possibility that their performance could influence the final poll results.

Polls versus a show of hands

ASA historically defended the use of a show of hands at AGMs so that the views of those shareholders who have taken the trouble to attend the meeting 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 ASX100 now do this, whilst the smaller end of the market remain dominated by the show of hands.

Voter participation at AGMs

ASA regards the aggregation and voting of undirected proxies on behalf of retail investors as one of its most important emerging functions. We received 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% of all registered holders, there appears to be a major problem with planners, accountants, brokers and fund manager not delivering proxy forms to retail investors.

Even the recent Westfield Retail vote saw only 12,000 out of 86,000 shareholders participate, despite the enormous amount of publicity and the fact investors were sent 3 separate ballot papers.

One way to reduce the disappointing no-show by an average of 94% of all holders 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

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.

Whilst this does notionally increase the level of accountability on the full board, it also serves to reduce 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.

 

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