Declining value of the annual general meeting

In the words of former Macquarie Group chairman Kevin McCann “the AGM’s broken but no one’s come up with a better alternative’’. [1]

The growth in the availability of company information and commentary on the internet has coincided with a staggering decline in attendance at the AGMs of ASX listed companies. In 2014, the average AGM attendance rate for ASX 50 constituents was less than 1/10th of 1%.[2] For a company with 100,000 shareholders that’s the equivalent of 90 shareholders.

Coupling this low attendance rate with the cost of holding an AGM (both in terms of dollars [3] and management and director time) we think something needs to be done to reinvigorate the much maligned AGM.

The law

All Australian public companies must hold an annual shareholder meeting within 5 months after the end of its financial year. [4] The law provides little guidance and imposes few requirements as to what form this meeting must take beyond requiring that the meeting “be held at a reasonable time and place” [5] and shareholders be afforded a reasonable opportunity to participate. [6]

The traditional AGM format

The traditional format for an AGM goes something like this:

15 – 30 minutes

The Chairman will open the meeting and make a number of introductory remarks primarily focused on the financial and operating results of the previous financial year.

The MD/CEO will then speak, giving a more detailed overview of the previous financial year with limited commentary on the year ahead and the direction of the company.

30 minutes – 2 hours

The formal business of the meeting will then be considered item by item with each item or resolution put to the meeting, discussed by shareholders and then voted on by a show of hands or on a poll.

Following the meeting

The meeting is closed and the directors, executives and shareholders mingle over tea, coffee and the ever important cakes and sausage rolls! By this point a large number of shareholders have often already left or quickly head for the exits.

We see two key problems with the traditional AGM structure:

  • Focus is on the past – The focus of the introductory remarks and the first two formal items of business of the meeting is invariably the financial results of the previous year. This puts the focus of the meeting on the year that’s been. Given most AGM’s are held 2 to 3 months after the release of the full year results, this is old news. The investment community has well and truly digested the full year results by the time the AGM rolls around and is more interested in the years ahead than the year that has been.
  • Resolutions are already decided – The overwhelming majority (generally more than 90%) of securityholders who vote do so before the meeting by casting a proxy vote. Of the votes cast in person at the meeting, almost all are cast by directors and other insiders. As a result, in all but a few exceptional cases, the results of the resolutions have been decided well before the resolutions are put to the meeting. This is not to say that the resolutions should not be open to discussion at the meeting but dedicating the majority of the time of the meeting to debating resolutions that have already been decided seems like a great way to disengage your shareholders.

Alternative AGM formats

A number of ASX listed companies have seen the inefficiency of the traditional AGM format and have been exploring deconstructing the order of business and sequencing of the traditional meeting. For example, most recently on 28 July 2016, Macquarie Group opened its 2016 AGM with the traditional remarks from the Chairman and MD (with a focus more on the year ahead than the year that’s been) and then put all of the items of formal business to the meeting at once. The meeting was then immediately adjourned so that the shareholders could mingle with the directors and executives. Once the attending shareholders had had an opportunity to ask questions of the directors and executives in a more personal and informal setting, the meeting was re-opened with all of the items of business open for discussion on the floor and shareholders were invited to ask questions about any or all of the items of business rather than have sequential discussion of each item. During this period shareholders were invited to cast their votes by poll whenever they pleased. The feedback on this structure, including from the Australian Shareholders Association (ASA), was very positive.

Others to have held concurrent debate on all items of business being considered at the meeting include CSR Limited and Rio Tinto Limited. For Rio Tinto Limited a stream-lined and efficient debate on the items of business is very important given that all directors are put up for election at every AGM. By holding the debate of all items concurrently, Rio Tinto Limited was able to cover all 19 items at its 2015 AGM in approximately 50 minutes.

Another ASX listed group adopting a similar approach is DEXUS Property Group. While the DEXUS structure consists of stapled registered managed investment schemes (ie, REITs) rather than companies, their approach is one that listed companies may find interesting. In addition to holding concurrent debate on all items of business, DEXUS arranges the seating for its AGM in a circular layout with the directors and management sitting among the investors. This approach seems to foster a more convivial atmosphere than the traditional layout of directors on stage and securityholders on the floor thereby encouraging greater securityholder participation.

While untested in an Australian court, in our view the chairman of a general meeting may hold open multiple items of business for concurrent debate (provided the company’s constitution does not limit the chairman’s power to control the meeting). The proposed procedure must not however be used to materially limit shareholders’ opportunity to ask questions or make comments on any individual item or the management of the company generally.

Other ideas

  • Web meetings - It is increasingly common for larger ASX listed companies to webcast their AGMs which is a cost-effective method for extending the reach of the meeting to shareholders who are otherwise unable to attend. We are not aware of any ASX 200 company offering shareholders the opportunity to vote or ask questions in real time via the web. Given the advancement of technology in recent years and the flexibility already available under the Corporations Act, there is no reason live participation over the web cannot be offered. Indeed, ASX listed start-up Omni Market Trade has launched an app which facilitates real-time voting and participation at AGMs. Omni Market Trade used its own app for its 2016 AGM with the majority of its 1,000 shareholders taking part virtually. Offering online participation could be a way to increase the breadth and quality of debate at meetings with a flow-on to the level of attendance and engagement at future meetings.
  • Debate first, vote second – Traditionally, most if not all votes at shareholder meetings were cast in person at the meeting itself. As a result, the meeting was an important forum for shareholders to attempt to sway their fellow voters and have a resolution carried or blocked. With the proliferation of directed proxy voting, today, the vast majority of shareholders effectively vote before the debate occurs. As the ASA has suggested, this is like Malcolm Turnbull and Bill Shorten participating in a leaders’ debate on the Monday after the election. Regulatory intervention would be required to allow companies to allow voting on the formal business after the meeting. However, the same effective outcome could be achieved by holding the meeting in two parts: the first consisting of the presentations and debate (ie, the current meeting content except the formal voting); and the second held sometime later at which only the formal voting would occur with shareholders encouraged to vote online or by proxy rather than in attendance. We appreciate the inefficiencies of holding a meeting in two parts like this and it would be of limited benefit unless the levels of participation in the first meeting were dramatically higher than current levels. However, given the moribund state of the AGM it is an idea worth considering.