23/11/2011 - 11:07

AGMs still have a valid role

23/11/2011 - 11:07


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Facing up to shareholders at annual meetings, and the two-strikes policy on remuneration reports, are both confronting for company directors, but so far this year they have delivered benefits.

Facing up to shareholders at annual meetings, and the two-strikes policy on remuneration reports, are both confronting for company directors, but so far this year they have delivered benefits.

MOUNT Gibson Iron shareholders could be forgiven for thinking annual meetings are a pointless exercise, but ironically their AGM last week was very revealing.

Chairman Geoff Hill spoke at length about the contentious issue of board independence and of his plans to ensure there would be a majority of independent directors in future.

He also praised managing director Luke Tonkin, following a run-down of the company’s strong financial position and positive operational performance.

The very next day, the company revealed that the Foreign Investment Review Board had written to it, and to the two Chinese shareholders that own 40 per cent of its stock and control its board.

Mr Hill had made no mention of the FIRB letter, which expressed concern about the failure of the company to have a majority of independent directors, as it had promised when Shougang and APAC Resources acquired their shares.

A few hours later, the company also announced that Mr Tonkin would be stepping down as managing director.

Again, Mr Hill had made no mention of that at the AGM.

That sequence of events, combined with the history of tension on the board – such as former chairman Neil Hamilton’s resignation last year – and all of the things not said at this year’s AGM, have given shareholders a wealth of information to make their own judgments about holding Mt Gibson stock.

The awkward body language at the AGM, and the lack of eye contact between directors – clearly evident after all of the events of last week – were also very revealing.

Automotive Holdings Group’s annual meeting was also revealing – once again, mainly because of what was not said.

A surprisingly large 44 per cent of shareholders voted against the company’s remuneration report.

This was one of the largest protest votes recorded by any listed company this year, surpassed only by a few stocks such as Globe International, Crown and Pacific Brands.

The vote was surprising for a number of reasons; there had been no outcry over the company’s remuneration practices, a majority of institutions supported the remuneration report, and, as chairman David Griffiths pointed out, it was essentially the same as the 2010 remuneration report, which gained 99 per cent backing.

So what conclusion can we draw? Well, there is clearly something going on that shareholders haven’t been told about.

That must give all shareholders pause for thought when they evaluate the merit of holding AHG stock.

Subsequent reports have speculated on the real issue – a rift between the Wheatley family, which founded AHG and retains a large shareholding, and the current board, possibly related to the exit early this year of chief operating officer Chris Marwick.

In an ideal world, all parties would lay their cards on the table, ensuring the market was fully informed.

The real world isn’t like that, but rather than bemoaning AGMs as pointless we can acknowledge that the AHG meeting has at least made the market aware there is a serious issue.

Voting on remuneration reports has been the most topical issue at this year’s annual meetings, mainly because of the ‘two-strikes’ legislation. 

If a company gets a 25 per cent ‘no’ vote at two successive meetings, it will be required to have a board spill.

This threat is unlikely to amount to much – it’s one thing for shareholders to lodge a symbolic protest, and another to spill the board; and more importantly, it takes a 50 per cent vote to spill a board.

So far, about 20 companies have ‘strike one’ against them. Some, such as Crown and Cabcharge, have been defiant, attacking the new rules. Others, like Emeco, have said they will address the issue to ensure they don’t get a ‘strike two’. 

A few companies, such as Mirvac and Downer, have changed their remuneration practices ahead of their annual meeting to appease critics.

And others have engaged in a robust debate, defending their practices, and coming away with a smaller protect vote.

The ‘two-strikes’ policy, like annual meetings, is far from perfect, but together, they give shareholders a greater say, and they subject directors to more scrutiny. That’s a good thing.


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