AICD Director Sentiment Index points to the need for AGM reform

The Director Sentiment Index (DSI) released last week reveals that over a third of directors consider the AGM system in Australia to be dysfunctional, representing a 15% shift in director sentiment over the past 5 years.

Director Sentiment Index: Research Findings (Second Half 2015)
Australian Institute of Company Directors, November 2015

The Director Sentiment Index (DSI) released last week reveals that over a third of directors consider the AGM system in Australia to be dysfunctional.

The latest DSI results represent a 15% shift in director sentiment over the past 5 years and, for the first time, a larger proportion of directors consider the AGM system to be dysfunctional (35%) rather than working well (32%).

The biggest shift in sentiment about AGMs has occurred over the last 2 years.

The DSI surveys a sample of over 500 company directors twice a year from a variety of industries, and is Australia’s only index of directors’ views and sentiments about business, regulation, governance and public policy.

The results suggest that debate about the efficacy of the AGM might have reached a ‘tipping point’, potentially requiring technological change and legislative reform.

What are some reasons for the shift in director sentiment about AGMs?

According to an Intelligence Report from Computershare, in 2013 and 2014, less than 0.2% of shareholders physically attended AGMs. From 2009 to 2012, attendance at AGMs fell by 10% per year, with the most significant decline being observed in companies outside the ASX300.

Others have said that this decline in AGM attendance may be due to shareholders being able to access publicly available information well in advance of AGMs, making physical attendance less necessary. Other commentators point to a shift in voting behaviour of shareholders, such as the increased use of proxy voting or the ability to vote online.

Technology continues to assist the facilitation of AGMs, with some companies (e.g. Telstra) offering live webcasts and recording of AGMs, including partnering with technology companies to provide live streaming and app-based voting. 

Other commentators consider that AGMs still holds strategic significance, particularly for large shareholders or institutional investors that wish to make their votes more transparent.

What does the future of AGMs look like? 

In 2012, the Corporations and Markets Advisory Committee (CAMAC) released a discussion paper titled “The AGM and Shareholder Engagement”, to consult on the future of the AGM in light of low annual meeting attendance rates and decreased shareholder engagement.

Among other things, the CAMAC discussion paper suggested that AGMs could be limited to deliberative and decision making functions only. The CAMAC discussion paper also included several proposals about the use of online technology, including the use of online streaming.

The Australian Institute of Company Directors provided a comprehensive submission to CAMAC’s inquiry. In that submission, the AICD noted that 58.7% of members surveyed identified the use of technology to broadcast meetings as the main area of the AGM that could be improved.

CAMAC was scheduled to report its final recommendations on AGMs in 2014; however, the report was shelved when the Government abolished CAMAC as an independent body and merged its functions with Treasury.

“The latest DSI results suggest we may have reached a tipping point in our AGM system”, says Rob Elliott, Executive Director of the AICD Governance Leadership Centre.

“Digital technology can change the way AGMs are run. The Government should seriously consider revisiting CAMAC’s work on AGM’s and ensure our laws reflect the way companies and their shareholders operate in practice, both now and in the future”.

A recent report by Ernst & Young provides some views about the future of AGMs, including hybrid physical-online meetings and completely virtual AGMs.

The Governance Leadership Centre invites input from interested parties about this important topic. Please direct your comments or enquiries by email here.