Facing shareholders at annual meetings constitutes an important part of many directors’ calendars. But it is an activity few approach with relish. When an annual meeting or results presentation is imminent, those required to speak are likely to be anxious about making the right impression in order to secure the confidence of investors and the business community as a whole.
An approaching annual meeting can all too often instil a sense of dread in even the most experienced director. This anxiety is, of course, quite understandable. Any type of disruption or mishandling of questions is likely to be reported in the media with glee. Moreover, annual meetings provide the opportunity for shareholder activism, with small pressure groups often attending with a plan to raise a specific agenda of issues. Reports of badly handled situations of this nature abound – for example, the case of the chairman who declared the meeting closed after a particularly demanding round of questions. The resulting sit-in protest and police intervention led to uncomplimentary coverage, not only of the day’s events, but of the underlying issues worrying shareholders. Such occurrences, along with the generally high-profile nature of the annual meeting, add to the sense of apprehension surrounding it.
Delivering presentations
So how can companies ensure their top executives are prepared to deal with the rigors of communicating with the financial community, be it once a year at the annual meeting or at more specialist briefing sessions? The following general rules can help make the whole experience less painful for all involved.
One of the first things to remember is that the financial community hates surprises. The responsibility of the public company is to be prepared to adopt an honest stance, particularly with its major shareholders and analysts. It is very rare that companies get away with being less than truthful with their shareholders, and once lost, confidence is notoriously hard to regain. To this end, ensure presentations are candid and forthright, and while competitive or security reasons may prevent you disclosing everything, avoid misleading at all costs.
This honesty must extend to sharing bad news with shareholders. Often the problem itself is less of an issue than the way the organization is seen to be dealing with it. Being frank about problems enables senior management to display the strategy by which it means to handle them, which is far more likely to gain investors’ trust than keeping quiet and allowing a full blown crisis to develop.
However, even when the message is negative, ensure that the way the subject is broached is just the opposite. As executive chairman of the UK-based IT services company Admiral plc, Clay Brendish says: ‘The importance of a positive approach must be impressed upon us all – it is vital to remember that we are senior representatives of a good company and ambassadors for it.’
Remain realistic at all times. By all means divulge future plans and strategies for dealing with current challenges, but do be wary of raising expectations above what the company can sensibly expect to achieve. Moreover, what shareholders buy is the future of a company, so while presentations should be forward-looking, they should also be solidly grounded in fact. Raising expectations can turn a set of good results into a unfortunate batch of poor ones simply because investors were expecting greater things.
In addition, think carefully about content. Being a great orator is all very well, but on these occasions audiences want to hear something of substance. Take time to think about the main messages to be conveyed. It is essential to run through any presentations with colleagues to ensure key messages are effectively communicated.
Dealing with questions
Apart from the message companies want to communicate at annual meetings and other business briefings, they also need to give due consideration to the interests of the audience and the questions they are likely to be asked. Before the event, it is important to take time to think of all the questions likely to arise. Look back to last year’s meeting and check any press exposure to remind yourself of any areas that may come under more intense media – and hence shareholder – scrutiny. Few companies can claim to have no tricky subjects on which they would like to avoid questions. These ‘hot topics’ come in many guises – a fall in profits, rumored redundancies, or talk of violations of human rights and environmental laws. Annual meetings provide an ideal opportunity for disgruntled retail shareholders to voice their discontent and demand reassurance on issues that have been troubling them.
Directors must therefore be able to handle sometimes difficult situations, dealing effectively with any hostile questioners while conveying the company’s core messages. Below are a few of the more common questions that may be asked and standard lines companies can take to provide a satisfactory answer.
Obviously this list is not comprehensive, nor should the answers necessarily be followed to the letter; rather they should be adapted according to the company’s particular circumstances. Organizations and situations differ, and companies should try to include as much company-specific information as possible when answering questions from the floor.
How can you justify the huge salaries and bonuses board members are receiving?
We have to pay the market rate for the job. It is vital to our shareholders that we attract and retain the very best people, both in good times and in bad. The remuneration committee, chaired by an independent non-executive director, ensures that we get the pay rates for our executive team right – not too much, not too little. Bonus structures are set so as to align the interests of the management team with those of the shareholders. Your management team must be incentivized to deliver the best returns to you as shareholders.
Profits have fallen this year. What are you doing about the company’s trading position?
Our executive team is constantly striving to maintain and improve profitability. We are examining all our operations and everything is up for review – nothing is sacrosanct. We go to great lengths to find out possible ways to improve the running of the company and deliver increased profits. Our management team is focused on this goal for the coming year. Naturally we are affected by the trading climate in the markets in which we operate. But our policy is aimed at creating steady and sustained growth in good times and bad.
Is it true that you are planning to make some redundancies and, if so, why?
A well-run company always aims to have a workforce appropriate to its needs. That means having the right numbers of people with the right mix of skills. Inevitably, staff numbers will have to vary over time. Redundancies are only ever made after very careful consideration, and only once we have explored all the alternatives. Having said this, we have no current plans for redundancies.
Is it true that you might soon be subject to a hostile takeover bid?
I take it you are referring to rumors that have appeared in the press. This amounts to nothing more than speculation, and we do not comment on speculation. However, I will say that the company is not for sale.
Why do you pay such huge severance pay to executives who are clearly being pushed out because of poor performance?
Where payments are made, they are made in accordance with the contractual agreements that are already in place with the individual employees. We seek the best possible severance terms for the company, but it’s our policy not to discuss any individual arrangements for obvious reasons.
How can you defend the company against recent accusations of unethical practice?
The company will never knowingly support unethical conduct. We have a code of conduct that is well known to all our stakeholders. If we find our code is being broken, we will take appropriate action.
Handling the hecklers
Provided that a company is fully prepared, there should be little chance of the speaker being thrown by any particular question. If you are faced by a particularly tricky question, however, these are the best ways to deal with it.
Take time – although not too long – to think of an appropriate response. If you cannot answer the question, explain that you do not have the information at hand, but offer to find out the answer and respond promptly after the presentation.
If you do not want to answer the question, do not ignore it or skirt around the issue. Instead explain politely to the questioner that you don’t intend to answer, adding a softening phrase to keep the audience on your side, such as: ‘I fully understand why it is that you’re interested in this, but I’m sure you can appreciate how useful that information would also be to our competitors.’
If someone challenges you, answer the question, but don’t allow a dialogue to develop. Try not to be rude, aiming instead to ‘kill with politeness’. Respond briefly to the point raised then, politely, make it clear that the discussion is closed by physically turning to another part of the audience and carrying on without a break.
Provided a company is properly prepared, the annual meeting can be handled effectively regardless of its fortunes at that particular time. The most important point to remember is that annual meetings are a unique opportunity for companies to publicize their good work and reassure their shareholders and other interested parties of the health of the organization. As such, annual meetings should always be viewed in as positive a light as possible. As with any occasion, their success lies mainly in the hands of the host.
Khalid Aziz is chairman of the Aziz Corporation, a UK-based spoken communications consultancy.
The views expressed in this article do not necessarily reflect those of Investor Relations magazine.
