The annual general meeting has come under fire for not staying relevant in the contemporary corporate governance environment. Australian Institute of Compnay Directors Fellow Steven Cole suggests ways we could improve the AGM.
The 2016 annual general meeting season witnessed criticism and questioning of the underlying contemporary value of the annual general meeting (AGM) as a vital instrument of effective corporate governance.
Traditionally, the annual general meeting of a corporation served the purpose of holding to account those charged with governance and management of the organisation, as well as being an opportunity for members to exercise their voting rights as set out by the constitution and law.
Recent shareholder wins
Before judging the corporate AGM, it is worth reflecting on what shareholders and investors have gained over recent decades in terms of the accountability and transparency of their boards and companies, sometimes reducing the importance of the AGM. The list would include:
- more robust legislative and regulatory requirements for corporate governance practices;
- enhanced professional practice standards and continuing professional development of directors and officers;
- materially improved quality and timeliness of disclosure of material price sensitive information;
- contemporary communications technology giving timely and easier access to company announcements; and
- shareholder voting on remuneration reports.
Criticisms of AGM effectiveness
Criticisms of AGM effectiveness generally fall into two categories, informational and procedural.
On the informational side, critics argue that the meetings yield little information that is not already available to the market; the materials that are prepared for the meeting, including the directors’ report, remuneration report, corporate governance statement, auditors report and financial statements are complex and difficult to understand; and that institutional shareholders gain more frequent and better quality information than retail shareholders.
When it comes to procedure, critics say that since most shareholders, by number and by percentage of holding, have already voted by proxy, the deliberations at the meeting have no material bearing on the resolution of the outcomes.
7 Proposals for reform
1. Multiple venue and virtual AGMs for shareholder convenience
With the enablement of contemporary communication technology, AGMs can be held simultaneously at multiple venues, including virtual venues, to improve the convenience of attendance for shareholders and to encourage greater shareholder participation and engagement.
2. Disconnect information flow from voting
Disconnect the presentations of information at the AGM from the voting on the resolutions by 48 hours to allow opportunity for greater engagement, informed and shared deliberations, and reflection by shareholders on the issues before the shareholders’ vote is taken.
3. Direct voting
Enable direct voting by shareholders on resolutions proposed, including e-voting, rather than having the need for physical completion of proxy forms.
4. All voting by poll
All voting at general meetings, at least on substantive rather than minor procedural motions, should be by way of formal poll rather than by show of hands so as to deliver greater assurance of integrity in the voting outcome and declaration of the result of meeting resolutions by the meeting chair.
5. Improvements to meeting information flow
Improvements in the quality, relevance and succinctness of information being provided to shareholder meetings, including:
- companies convening a series of information briefings, webcasts or podcasts leading up to the holding of a shareholders’ meeting;
- improving the quality, clarity, succinctness and “plain English” virtues of the notice of meeting and explanatory notes and information accompanying the notice of meeting papers;
- improved use of audio/visual technology including infographics and video screening rather than traditional pre-typed reports read verbatim from the podium;
- more time being taken to explain the company’s future direction and prospects, its strategy and risks, and the plans for addressing such matters;
- greater clarity of information, in lay terms, for the remuneration report; and
- More information about the skills, experience and attributes of the board members, especially those standing for election/re-election.
6. Improvements to meeting conduct
Improvements to the manner in which shareholder meetings are conducted including:
- directors and other executives, not just the chair and CEO, speaking;
- inviting questions on notice from shareholders in advance of meeting;
- improved skills and meeting management by the chair to enhance meeting efficiency and effectiveness; and
- greater involvement of auditors to respond to financial questions.
7. Improved shareholder engagement
Improving shareholder engagement requires goodwill from all parties. Some areas where stakeholders could be doing better include:
- companies improving quality of engagement with institutional shareholders;
- shareholders supporting the chair in situations where special interest shareholders seek to disrupt the proper business of the meeting; and
- proxy advisers being more available and engaged, and less formulaic in their analysis.
Conclusion
Emerging improvements and changes in the corporate regulatory landscape have all coincided to lessen the relative importance of shareholder meetings, especially the AGM, compared with by-gone years.
Arising from these factors, some commentators have raised the question as to whether or not the AGM in its current form should be persisted with at all. Many, if not most, commentators have suggested means by which shareholder meetings may be improved.
It is submitted that shareholder meetings generally, and the AGM in particular, retain valid and important roles in sound corporate governance practice, although it is acknowledged that there is room for improvement to ensure their future governance effectiveness and vitality.
In the call for the review of the future of the AGM, care must be taken not to throw the baby out with the bathwater.
This article is an abridged summary of the author’s paper “The Future of the AGM: Don’t throw the baby out with the bathwater”.
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