AGM Revolution

The latest AGM season showcased more innovation in content format and delivery. But as attendances decline, governance observers say the inevitable move towards virtual or hybrid online/offline AGMs must quicken.

This is a key issue for boards. Annual general meetings, for all their limitations, remain a foundation of good governance; a chance for retail investors to eyeball directors and management, ask questions and exercise their vote.

But AGM attendances decreased by 25 per cent over 10 years to 2015, according to a survey of 700 meetings by share registry, Computershare. Anecdotally, attendances were down again this year in the peak October/November AGM season for companies with a June 30 year-end.

Less than 1 per cent of securityholders (0.158 per cent) attend company meetings in 2015 and only 5 per cent of shareholders voted, says Computershare. The decline is prompting continued debate on AGM relevance and whether virtual AGMs (online only) are the answer.

“Online AGMs won’t solve the problem,” says Australian Shareholders’ Association (ASA) chair, Diana D’Ambra. “Fewer investors are turning up to AGMs because most meetings rehash old news. Online AGMs would transfer the problem from one format to another.”

But consider the experience of ASX-listed companies with a large retail shareholder base. Some spend up to $1 million on their AGM in mailouts for the notice of meeting, venue hire and other event services – and more again in management and board time.

ASX 100 companies often start planning their AGM a year in advance to secure a venue, and increase their focus three months before the event. AGM preparation cuts across the executive team, board, company secretary, investor relations and media managers, and other internal resources. The meetings also involve external resources, such as the audit firm.

That is a big investment for an event that might attract only 100 retail shareholders – up to $10,000 per investor for an AGM that costs $1 million. Those shareholders might collectively own less than 1 per cent of the company’s shares and have almost zero influence on voting.

Moreover, continuous disclosure laws for ASX-listed companies mean material information is known to the market well before the AGM. More companies are releasing their first-quarter trading results for the financial year at their AGM to provide “fresh news”, but even that is typically available via the ASX Company Announcements platform on the morning of the event.

The declining return on a company’s AGM investment is compounded by high risks. Shareholder and environment activists are increasingly using AGMs to highlight narrow agendas and have them reported in the media, and damage the company and board’s reputation.

Ian Matheson, CEO of the Australasian Investor Relations Association (AIRA), says it is more important to encourage investors who represent a greater percentage of the company’s issued capital to vote at AGMs, rather than focus mostly on retail investors. “It might add a new dynamic into AGMs if institutional investors can ask questions and vote online while watching the meeting.”

Matheson adds: “People confuse political democracy with corporate democracy: they think it’s one shareholder/one vote and that all investors should be treated equally. The reality is it is one share/one vote and institutional investors with large shareholdings get a lot more access to management and the board, and are treated differently to retail investors,” Matheson says. “That doesn’t mean selective disclosure, though.”

AGM innovation underway

Listed companies, particularly larger ones, are responding to the AGM challenge by better use of technology. Live webcasting of meeting, electronic voting via handheld devices or through smartphone Apps at the AGMs, and increased use of electronic polls rather than a show of hands (which speeds up meetings and improves vote accuracy) is becoming the norm in large AGMs.

Other companies are experimenting with AGM formats. Macquarie Group was praised this year for adjourning its AGM after the formal items of business and giving attendees a greater opportunity to hear from management and the board, and ask questions.

CSR Limited was also singled out for a productive AGM format that provided more time for comments from its board and executives. Hearing from executives, beyond the CEO, about industry conditions and challenges was well received by shareholders.

Industry superannuation group, AustralianSuper, is another that is known for strong investor communication through regular meetings. Listed Investment Companies, such as Australian Foundation Investment Company, engage with retail shareholders outside of their AGM by providing their views on the outlook for equity markets and investment trends.

Some companies are improving their AGM format through standalone events for retail investors prior to the main meeting. Telstra Corporation, for example, has a meeting that allow retail investors to hear from management and ask questions outside of the AGM. BHP Billiton is another that is using this technique for retail investors.

Accounting software provider, Xero Group, in August had its first Australian AGM where shareholders could attend the meeting via an online platform and vote through their phone. Xero is the first company to use technology from share registry, Link Group, in Australia for a full virtual AGM. As a New Zealand-domiciled company, Xero took advantage of NZ legislative amendments for communication practices for listed companies.

Telco group, Spark New Zealand, used the virtual meeting technology in November 2015 and hundreds of virtual AGMs have been held in the United States. Australian public companies cannot hold a virtual-only AGM because the law does not yet extend to shareholders participating in a listed company AGM from their home or office via an online platform.

A 2012 discussion paper by the Corporations and Markets Advisory Committee (CAMAC) flagged the issue of legislative amendment to allow Australian shareholders to participate and vote in AGMs online. But the Federal Government dismantled CAMAC in 2014.

Treasury has proposed improvements in distributing AGM meeting notices and materials in its May 2016 consultation paper, Technology Neutrality In Distributing Company Meetings and Notices. The outcome is not yet known. If adopted, the changes would allow companies to provide electronic distribution of meeting notices – without affecting those who opt-in to receive hard copies.

But are these changes enough?

As the proportion of institutional ownership of listed companies grows (because of mandated superannuation), will different communication/voting formats be required for retail investors? As Australian companies globalise, attracting a higher proportion of foreign investors, will physical AGMs in one location still serve a purpose?

Social change is another factor. As technology-savvy millennials increasingly own shares directly or indirectly, will the prospect of spending three hours at an AGM, many of which are highly procedural, hold less appeal? Are regulators assuming AGMs are a cornerstone of good governance when even baby-boomer investors are losing interest?

Road to hybrid AGMs

These are complex issues. The move towards virtual AGMs, while seemingly inevitable, may require legislative change in Australia, although there are differing opinions on whether legal change is needed to allow online meetings. More likely is a hybrid model where companies have shorter, traditional AGMs and supplement them with technology. Ian Matheson says the use of purely virtual AGMs in Australia is at least five years away (assuming legislative change) and expects companies to incorporate extra technology in their meetings in a hybrid format. “The big unknown is whether retail shareholders would accept an online-only AGM. There is still a cross-section of older investors who may prefer the current face-to-face meeting format or do not own, or are not able to use, technology to access online meetings.”

Matheson says AGMs should become shorter and more procedural, supplemented by a separate Q&A-style event for retail investors. “Retail shareholders typically go to AGMs because they want to ask questions, but often the meeting gets bogged down in shopping-trolley questions (about company products and services) and becomes tedious. These questions could be asked in a separate format, allowing the formal AGM to be made faster and more productive.”

For example, more companies could host an information session for retail shareholders the day before their AGM. Management and possibly the board could discuss company performance and strategy, update investors on longer-term issues and take questions.

“Retail investors could still attend the AGM the following day if they want to air concerns about resolutions, such as the acceptance of executive pay proposals,” says Matheson.

The ASA’s Diana D’Ambra says the main issue is AGM content, not channel delivery. “Companies need to make their AGMs much more forward-looking. Why would retail investors give up hours of their time to attend a meeting that is highly scripted, provides old news and, frankly, is often only held to fulfil the organisation’s legal obligations?”

AGMs, she says, should inform retail investors about the company’s strategy, the expected evolution of its industry, or issues such as corporate conduct and the how the organisation is responding to global, environmental, social and other macro issues. “Retail shareholders who are investing for the long term want to hear from the company and its board, and ask questions about these issues.”

D’Ambra favours the concept of companies providing separate information sessions for retail investors prior to their AGM, or at regular intervals during year. She says companies should consider having more executives and directors present at the AGMs. “All too often, you only hear from the chair and the CEO. Retail shareholders like hearing from other executives, to get a broader perspective and understand who else is running the company.”

She believe AGMS will evolve into a hybrid model where “companies have a physical as well as a virtual AGM”.

Freshening up AGM content

Making AGMs more interesting for attendees is vital, says Warwick Bryan, the former Executive General Manager of investor relations at the Commonwealth Bank and now an adviser at Reunion Capital Partners.

“Too many chairmen and CEOs, frankly, give dull presentations, which, to some extent, is a function of the legal requirements that need to be observed,” he says. “While I accept that there is a lot of important procedural work that AGMs need to get through, there is room for more creativity in how information is tailored and delivered to retail shareholders.”

Bryan says chairman/CEO addresses could be more interactive and engaging. “Many chairmen and CEOs just read a prepared speech or plough through a set of PowerPoint slides, using content that is often months out of date. Often, there doesn’t appear to be enough of an effort tailor presentations for an audience that is predominantly retail. There is a real opportunity to do things differently at AGMs and liven them up.”

Bryan says moderated panel discussions between the executive team and audience on company strategy and performance can freshen up AGMs. “It’s about making AGMs more interactive, informative and interesting.”

Bryan recommends greater focus on Environment, Social and Governance (ESG) considerations at AGMs. “It’s taken a while, but ESG issues are starting to get real traction in the investment community. There’s an opportunity at AGMs, particularly for boards, to comment on long-term ESG issues for the company.”

Bryan welcomes Treasury’s proposal to allow for online notification of AGMs, but says any legislative change should do away with the need to provide written notices of AGMs.

“Mailing tens of thousands of letters to shareholders who don’t opt in to receiving electronic communications is expensive and outdated. Those who don’t opt in should be deemed to have received notice by virtue of the company lodging the Notice of Meeting with the ASX “

The Australian Institute of Company Directors has a different view. In a June 2016 submission to Treasury’s, AICD wrote: “We do not support enabling companies to default to general public notices, although this method could appropriately be offered to shareholders on an ‘opt in’ basis.”

In an AICD survey only 5 per cent of respondents felt it was an acceptable default for a company to post meeting notices and papers on the company website with members notified via a public announcement.

Treasury’s proposal gives examples of companies sending the notice of meeting via SMS to shareholders, through a smartphone App, or emailing the notice to shareholders where email address details are held by the company and previous communication has been done online. Shareholders who prefer hard-copy communication would still receive it.

Treasury wrote: “The movement to using an alternative method of communication may negatively impact the engagement of retail shareholders who may not have access to the nominated service, but are actively engaged as members of a company and are accustomed to receiving hard-copy notices of meetings or who are not otherwise made aware of the potential change.”

Making AGMS more ‘at risk’ for boards

Robyn Weatherley, author of the popular governance book, Eyes Wide Open, says the concept of AGM voting being held two weeks after the event deserves greater debate. Voting at AGMs is often a procedural matter as institutional investors, who own the majority of shares, cast their votes before the meeting via proxies. This means there is little “at risk” for boards during the AGM.

She says such a move would require legislative change and careful consideration because it lengthens the AGM process. “But there is merit in having more at stake at AGMs and giving investors extra time to vote on issues, such as director re-election, having attended the AGM and heard from management and the board. One can understand investors avoiding AGMs when nearly all of the voting and meeting outcomes are determined before the meeting.”

Institutional investors, says Weatherley, should be encouraged to engage in AGMs. “Right or wrong, retail investors, due to their small shareholding, will never have any real influence at AGMs. I would like to see more institutions outline their views at the AGMs, not only behind closed doors in meetings with management and the board. Granted, that is not the style of many institutional investors, but those with a large shareholding who are managing money on behalf of investors could do more to air their views at the AGM, such as around longer-term ESG issues.”

Weatherley says companies need to better understand the AGM needs of retail investors, particularly younger ones. “If you were white-boarding what the ideal AGM looks like, would it be the current format? I doubt it. Companies and regulators need to find ways to keep innovating AGMs.”

Weatherley adds: “AGMs remain a critical element of our governance system and investors pay a premium to invest in well-governed markets such as Australia. But that does not mean we should only tinker around the edges with the AGM format or wait years until younger, tech-savvy investors come through and prefer virtual AGMs. Faster change that preserves shareholder rights while improving the AGM format for investors and companies is needed. It’s a question of balance.”