AGM season opens for another year — but shareholders are switching off

The AGM is in trouble

For Australia’s listed companies, September marks the kick-off of the AGM season — a time when shareholders and company directors and executives meet to discuss and make decisions about the company’s governance and performance.

Yet for many companies today, holding an AGM has sadly become an exercise in ‘going through the motions’ as shareholder interest and attendance dive to new lows.

Governance Institute’s 2014 Benchmarking survey has again confirmed the long-term decline of shareholder attendance at AGMs, highlighting that this historic institution — created during the era of horse and coach and a fledgling postal service — is far from the best way to engage shareholders in the 21st century. The AGM’s current rationale is to engage retail shareholders, but it is failing at that.

Facing the hard facts

Our research has revealed a drastic decline in shareholder interest in the AGM:

  • The percentage of shareholders who attended the AGMs of our largest companies in 2013 was 0.5 per cent — a fall from 1.5 per cent in 2007.
  • The percentage of shareholders who attended the AGMs of our medium-sized companies in 2013 was 0.3 per cent — a drop from 0.7 per cent in 2007.
  • Sixty per cent of large and medium companies are now webcasting all or part of their AGM over the internet — a small rise from 55 per cent in 2001. But the number of shareholders viewing the webcasts remains very small.
  • In 2013, the average number of shareholders viewing webcasts was 208 — a fall from an average of 480 viewers in 2011 — indicating that this format has failed to win over substantial numbers of shareholders.

Why shareholders are deserting

The AGM in its current form is failing to engage retail shareholders for many reasons.

For one, the AGM no longer works as a decision-making forum for company resolutions. In the overwhelming number of cases, the outcome has already been determined before the meeting, as institutional shareholders always vote in advance by proxy. This renders retail shareholder votes at the meeting practically meaningless.

The content of the meeting can also be irrelevant and overly formal for retail shareholders. Shareholders do not want to discuss the company’s published annual financial statements which are ‘old news’ by the time the meeting is held. They would prefer to discuss the company’s present condition, performance and plans.

Moreover, shareholders do not want to sit through lengthy, highly formal meetings structured around resolutions that need to be passed. The recitation and formalities around resolutions alone can take up a significant part of the meeting and are hardly attention-grabbing. Retail shareholders currently feel more comfortable asking questions of the directors and senior management over a cup of tea after the formal AGM than during the meeting.

How the AGM could be improved

Our proposal for AGM reform is to de-link the decision-making function from the AGM. The meeting itself should become a forum for shareholders to comment on and ask questions of the board and executives on current issues including: the directors’ stewardship of the company; the financial position and performance of the company, although not necessarily linked with the last annual report; the company’s operations and strategy; remuneration practices and other relevant issues. This would engender more meaningful discussion and improve the quality of debate.

Matters that require shareholder votes such as director elections and the remuneration report should be transacted separately and enabled by technology. This would proceed via direct voting and on a poll with a default of online voting.

With the requirement to publish the results of voting and still hold a meeting about the company during the year, the company would remain open to public scrutiny for its actions. If voting is contentious, or shareholders are dissatisfied with company performance since the last shareholder meeting, the immediacy of social media means that any individual can express their views and find an audience.

RIP CAMAC and goodbye to AGM reform

The Corporations and Markets Advisory Committee (CAMAC) was tasked by the previous government to look at the future of the AGM. During 2011 and 2012, CAMAC undertook a project to consider reform possibilities for this essential component of the governance framework, and was in the advanced stages of considering submissions and preparing its analysis when the body was regrettably axed in the Federal Government’s Budget this year.

CAMAC had been scheduled to report its recommendations in August this year. Although the government has transferred the project to Treasury, we are not confident that the level of independence, corporate law expertise and practical understanding of the market for which CAMAC was highly regarded resides equally in Treasury. In fact, there has been no update from Treasury since on when (or more pertinently, whether) a report will issue.

And so corporate Australia continues to be saddled with a costly, inefficient institution which meets no one’s interests — neither shareholders nor companies.

What are your thoughts on AGM reform?

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