Over recent years, the way in which annual general meetings (AGMs) are conducted in my home country of Australia has been the subject of a considerable volume of criticism, and calls for an overhaul of the way they are conducted have intensified.
However, I do not support these calls.
Whilst not perfect, I feel that AGMs in their current form are worthwhile – predominately for shareholders but also for companies as well.
AGMs under fire
Last week, James McKenzie, chairman of Australian retail company Pacific Brands, became the latest voice in calls for a complete overhaul of shareholder meetings in Australia, according to a report in the Australian Financial Review (AGMs: Nice place for a cup of tea and a bite to eat, May 15, 2010).
McKenzie believes the U.S model, which relies more on proxy votes, is more effective.
“What I like about the American AGM system is that you don’t get 250 people stacked in a room for probably not the right objectives – i.e. free food and a cup of tea afterwards, asking silly questions ..”
“.. The Americans do it all by proxy.”
He is not alone. According to the report, two-thirds of directors at the Australian Company Institute of Directors annual conference in Christchurch, New Zealand, agreed that the AGM was no longer an effective place of communication with shareholders.
(Note: Though the above quote refers to the American system, my comments here relate solely to Australia and do not, in any way, represent a critique of current U.S practice in this area)
Some criticisms valid ..
To be sure, some areas of complaint are valid.
AGMs do cost money and take up management time. And occasionally, the process is subject to abuse – either by interest groups trying to push their own agendas, or by individual shareholders using the meeting as a forum to make unsubstantiated allegations.
.. but they do have value
Nevertheless, AGMs are worthwhile, and their value extends well beyond scrumptious sandwiches and snacks.
This is so for a number of reasons:
• Those ‘frivolous’ questions are important.
To be sure, some questions and comments may seem inconsequential in the broad scheme of things.
But they are important to those who ask them. And it is important that all shareholders, regardless of the size of their holding, have an effective forum to ask questions, voice frustrations or concerns, and challenge directors on areas of performance or behavior.
• For shareholders, there is real value in meeting senior staff.
Equally important is the ‘mingling’ which takes place after the formal part of the meeting.
In my own case, I have only ever been to one AGM: that of Australian chemicals and mining services outfit Orica Ltd last year.
Most likely the process of meeting myself and other small shareholders did not seem overly consequential from the viewpoint of directors and senior managers on that occasion.
But it was important to me. This was my one chance to meet the key people behind my investment, and having sat in on the presentation and met some of those in charge, I went home that day feeling a great deal more comfortable about where my money was placed.
• They do promote accountability.
There is something special about face to face meetings, and the idea of directors having to account for themseves in person does up the ante a notch in terms of accountability.
For one thing, the corporate ‘spin doctoring’ often associated with other forms of communication is not so easy face to face. And it becomes more difficult for directors to gloss over or ignore legitimate concerns about performance or behavior in a forum where they are subject to direct challenge from shareholders.
Besides, the idea that any individual shareholder can be physically present during and participate in proceedings regarding board elections and company resolutions does promote confidence in the idea that the whole thing is properly transparent and above board. This is still the case even where proxies account for large portions of the vote.
• An investment in stakeholder relations
But most importantly AGMs do not just benefit shareholders; well run, they benefit the company as well.
AGMs represent an unparalleled opportunity to exhibit professionalism; to articulate vision, strategy and direction; and to respond in a constructive way to any legitimate investor concerns.
All this does wonders for investor relations (not to mention public relations), and I would certainly have thought that the benefits of a successful meeting would be more than sufficient to justify the costs involved – particularly given the importance of shareholders as a stakeholder group.
In their current form, AGM’s in Australia are not perfect. But they do have value, and I do not support calls for an overhaul with regard to their proceedings.
Oh, and keep that free food coming – those doughnuts, muffins and fresh sandwiches are delicious!