This month’s highlights from our Governance Leadership Centre where we showcase research from around the world.
Has the traditional annual general meeting reached its peak? Tony Featherstone asks whether it is time to adopt a better format.
The latest annual general meeting (AGM) season showcased more innovation in content, format and delivery. But as attendances decline, governance observers say the inevitable move towards virtual or hybrid online/offline AGMs must quicken. This is a key issue for boards. AGMs, for all their limitations, remain a foundation of good governance; a chance for retail investors to eyeball directors and management, ask questions and exercise their vote.
But AGM attendance decreased by 25 per cent over 10 years to 2015, according to a survey of 700 meetings by share registry, Computershare. The decline is prompting continued debate on AGM relevance and whether virtual AGMs are the answer. “Online AGMs won’t solve the problem,” says Australian Shareholders’ Association (ASA) chair, Diana D’Ambra MAICD. “Fewer investors are turning up to AGMs because most meetings rehash old news. Online AGMs would transfer the problem from one format to another.” But consider the experience of ASX-listed companies with a large retail shareholder base. Some spend up to $1 million on their AGM in mailouts for the notice of meeting, venue hire and other event services – and more again in management and board time.
The declining return on a company’s AGM investment is compounded by high risks. Shareholder and environment activists are increasingly using AGMs to highlight narrow agendas and have them reported in the media, and damage the company and board’s reputation. Ian Matheson FAICD, chief executive officer (CEO) of the Australasian Investor Relations Association, says it is more important to encourage investors who represent a greater percentage of the company’s issued capital to vote at AGMs, rather than focus mostly on retail investors.
“It might add a new dynamic into AGMs if institutional investors can ask questions and vote online while watching the meeting,” he says.
Listed companies, particularly larger ones, are responding to the AGM challenge by better use of technology. Live webcasting of meetings, electronic voting via handheld devices or through smartphone apps at the AGMs, and increased use of electronic polls rather than a show of hands is becoming the norm in large AGMs. Other companies are experimenting with AGM formats. Macquarie Group was praised this year for adjourning its AGM after the formal items of business and giving attendees a greater opportunity to hear from management and the board, while some companies are improving their AGM format through standalone events for retail investors prior to the main meeting. Telstra Corporation, for example, has a meeting that allows retail investors to hear from management and ask questions outside of the AGM. BHP Billiton is another that is using this technique for retail investors.
Accounting software provider, Xero Group, in August had its first Australian AGM where shareholders could attend the meeting via an online platform and vote through the phone. Xero is the first company to use technology from share registry, Link Group, in Australia for a full virtual AGM. As a New Zealand-domiciled company, Xero took advantage of New Zealand legislative amendments for communication practices for listed companies. Australian public companies cannot hold a virtual-only AGM because the law does not yet extend to shareholders participating in a listed company AGM from their home or office via an online platform.
A 2012 discussion paper by the Corporations and Markets Advisory Committee (CAMAC) flagged the issue of legislative amendment to allow Australian shareholders to participate and vote in AGMs online. But the Federal Government dismantled CAMAC in 2014.
In a May consultation paper, Treasury proposed improvements in distributing AGM meeting notices and materials. If adopted, the changes would allow companies to provide electronic distribution of meeting notices without affecting those who receive hard copies.
But are these changes enough? These are complex issues. The move towards virtual AGMs, while seemingly inevitable, may require legislative change in Australia, although there are differing opinions on whether legal change is needed to allow online meetings. More likely is a hybrid model where companies have shorter, traditional AGMs and supplement them with technology.
D’Ambra says the main issue is AGM content, not channel delivery. “Companies need to make their AGMs much more forward-looking. Why would retail investors give up hours of their time to attend a meeting that is highly scripted, provides old news and, frankly, is often only held to fulfil the organisation’s legal obligations?”
D’Ambra favours the concept of companies providing separate information sessions for retail investors prior to an AGM, or at regular intervals during year. She says companies should consider having more executives and directors present at the AGMs. “All too often, you only hear from the chair and the CEO.”
Making AGMs more interesting for attendees is vital, says Warwick Bryan, the former executive general manager of investor relations at the Commonwealth Bank of Australia, now an adviser at Reunion Capital Partners. “Too many chairs and CEOs, frankly, give dull presentations, which, to some extent, is a function of the legal requirements that need to be observed,” he says. “While I accept that there is a lot of important procedural work that AGMs need to get through, there is room for more creativity in how information is delivered to retail shareholders.”
Bryan welcomes treasury’s proposal to allow for online notification of AGMs, but says any legislative change should do away with the need to provide written notices of AGMs. “Mailing tens of thousands of letters to shareholders who don’t opt in to receiving electronic communications is expensive and outdated. Those who don’t opt in should be deemed to have received notice by virtue of the company lodging the notice of meeting with the ASX.”
The Australian Institute of Company Directors (AICD) has a different view. In a June 2016 submission to Treasury, AICD wrote: “We do not support enabling companies to default to general public notices, although this method could appropriately be offered to shareholders on an ‘opt in’ basis.” In an AICD survey, only 5 per cent of respondents felt it was an acceptable default for a company to post meeting notices and papers on the company website with members notified via a public announcement.
Robyn Weatherley AAICD, author of the popular governance book, Eyes Wide Open, says the concept of AGM voting being held two weeks after the event deserves greater debate. Voting at AGMs is often a procedural matter as institutional investors, who own the majority of shares, cast their votes before the meeting via proxies. This means there is little “at risk” for boards during the AGM.
She says such a move would require legislative change and careful consideration because it lengthens the AGM process. “There is merit in having more at stake at AGMs and giving investors extra time to vote on issues. One can understand investors avoiding AGMs when nearly all of the outcomes are determined before the meeting.”
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