AGM system reaches “tipping point”

Over a third of directors consider the annual general meeting system in Australia to be dysfunctional, according to the latest results from the Director Sentiment Index.

The bi-annual survey, conducted by the Australian Institute of Company Directors (AICD), shows that for the first time, a larger proportion of directors consider the AGM system to be dysfunctional (35 per cent) rather than working well (32 per cent).

The biggest shift in sentiment about AGMs has occurred over the last two years.

The results suggest that debate about the efficacy of the AGM might have reached a “tipping point”, potentially requiring technological change and legislative reform.

According to an Intelligence Report from Computershare, in 2013 and 2014, less than 0.2 per cent of shareholders physically attended AGMs. From 2009 to 2012, attendance at AGMs fell by 10 per cent per year, with the most significant decline being observed in companies outside the S&P/ASX 300.

So, what are some reasons for the shift in thinking?

Some have said that this decline in AGM attendance may be due to shareholders being able to access publicly available information well in advance of AGMs, making physical attendance less necessary. Other commentators point to a shift in voting behaviour of shareholders, such as the increased use of proxy voting or the ability to vote online.

Technology continues to assist the facilitation of AGMs, with some companies offering live webcasts and recording of AGMs, including partnering with technology companies to provide live streaming and app-based voting.

Becoming digitally engaged

Megan Boston, managing director of Omni Market Tide, developers of app-based investor relations says, “Every listed company, every organisation, every voting body, will one day engage their stakeholders using mobile device technologies. This will cause disruptive change to governance processes and shareholder engagement practices.”

For many, AGMs still hold strategic significance, particularly for large shareholders or institutional investors that wish to make their votes more transparent.

What does the future of AGMs look like?

In 2012, the Corporations and Markets Advisory Committee (CAMAC) released a discussion paper The AGM and Shareholder Engagement to consult on the future of the AGM in light of low annual meeting attendance rates and decreased shareholder engagement.

The AICD provided a submission to CAMAC’s inquiry, which noted that 58.7 per cent of members surveyed identified the use of technology to broadcast meetings as the main area of the AGM that could be improved.

CAMAC was scheduled to report its final recommendations on AGMs in 2014; however, the report was shelved when the Government abolished CAMAC as an independent body and merged its functions with Treasury.

“Digital technology can change the way AGMs are run. The Government should seriously consider revisiting CAMAC’s work on AGMs and ensure our laws reflect the way companies and their shareholders operate in practice, both now and in the future,” said Professor Rob Elliott FAICD, executive director, AICD Governance Leadership Centre.

A recent report by Ernst & Young provides some views about the future of AGMs, including hybrid physical-online meetings and completely virtual AGMs.