From Shell to Eurotunnel, from Disney to Hollinger International, the annual shareholder meeting – or annual general meeting (AGM), as it is also known – was the backdrop to some of last year’s most memorable IR cataclysms. Issues of executive remuneration packages and boardroom independence were at the heart of the 2004 proxy season – and, with the 2005 season on their doorstep, companies are bracing for a new round of intense shareholder engagement.
The AGM is really two things under one name: the regulatory process of gathering institutional shareholder votes, and the stage-managed event for retail shareholders where resolutions are rubber-stamped, based on institutional votes cast before the meeting began. Some argue that none of the legislation requiring the timely and fair disclosure and dissemination of information is actually enforced or even aided by the AGM in its present form.
Sheli Rosenberg, former vice chair of Chicago-based Equity Group Investments, says it’s about time regulators realized AGMs are useless. ‘They no longer serve the purpose for which the statutes were created,’ she explains. ‘AGMs are just forums where some gnats get to hear and be heard in a totally undemocratic forum, because they don’t represent the majority ownership. Meanwhile, you have very senior managers spending an enormous amount of time preparing for them – it is an unfortunate waste of time and money.’
This view is privately shared by many in the corporate world, though not by Andrew Tonkinson, group company secretary at global brewing giant SABMiller. Tonkinson is adamant the AGM not only serves the company’s retail following, but also retains its institutional relevance.
‘The annual meeting helps focus institutional minds on the company because there’s voting to be done, regardless of whether they’re there in person to do it,’ he says. ‘The days when institutions didn’t bother to vote are over because there is now scrutiny from all around. The meeting allows us to get in touch with investors on matters we don’t usually discuss during the normal course of events – such as governance – because they’re usually more interested in issues like earnings per share.’
The show must go on
Indeed, unless there are obvious burning issues, AGMs rarely involve any serious questioning from the financial community, notes Brian Rafferty, co-founder of independent IR consultancy Taylor Rafferty – but companies would be foolish to ignore the benefits. ‘The AGM is one of the few opportunities for small retail shareholders to have access to management,’ he points out. ‘That has tremendous psychological significance and also gives companies a great opportunity to communicate their corporate social responsibility (CSR) agenda to investors and the press.’
The sharp rise in shareholder activism means companies are catering to more than just the perennial flock of pensioners and other small investors and paying more attention to how they approach their AGMs. According to preliminary reports from the 2004 survey of quoted companies by the Institute of Chartered Secretaries and Administrators in the UK, companies spent an average of 62 minutes on their AGMs last year, compared with 53 minutes in 2003 and 48 minutes in 2002.
‘In the old days meetings were funnier and not as engineered; nowadays people are a lot more serious,’ says Nicky Havelaar, managing director at London-based Crown Business Communications. ‘A lot of these smaller investors really do their homework now and activism is far more intelligent. They used to dress up as big cats [to protest fat-cat pay] but it’s not about placards anymore; it’s about a well-composed argument.’
Ultimately, the way a company approaches its AGM depends on the makeup of its shareholders and the attitude of the board, adds Havelaar. Companies that are not interested in their smaller owners will probably regard the meeting as an irritation, and possibly even try to dissuade shareholders from attending at all. ‘Some will hold their AGMs in inaccessible places like the Outer Hebrides in Scotland and make it almost physically impossible to turn up,’ she says. ‘They have no misgivings about it.’
Other companies, particularly product-led ones, tend to view the meeting as more of a PR opportunity and try to build on the event. This can involve mounting huge exhibition areas or turning the event into an open day to invite staff and other stakeholders to make the best of their initial investment.
‘Higher education company DeVry, one of our clients, is in the midst of a strong turnaround, so it made a big production of its 2004 annual meeting in terms of rolling out advertising and really making the chairman, CEO and new managers available for questions from the audience,’ says John Kroen, executive vice president of Chicago-based IR consultancy Dresner Corporate Services. ‘The company basically used the AGM as a launching pad for next year’s messages.’
The dreaded Q&A
French companies have long understood the AGM to be a PR exercise of little institutional consequence, says Franck Milliot, CEO at Paris-based AGM specialists Momentys. ‘The big companies all want to have the best annual meeting at the best venue,’ he observes. ‘While the regulatory obligations must be attended to, firms also host cocktail receptions and give away little gifts. Everybody has to be seen – it’s a very political thing.’
Treating the meeting as a stage-managed ritual rather than a shareholder forum sometimes continues all the way to the Q&A session. Normally the most stressful part of any AGM, companies everywhere routinely supply friendly shareholders with pre-arranged questions for the chairman’s Q&A. Either way, a good performance by the chairman makes a lasting impression with both investors and the media.
‘The AGM is often the only forum where small and large shareholders alike have any opportunity to see the company chairman in action,’ explains Rafferty. ‘The last AGM I went to was Scottish Power’s and the chairman was awesome. There were people complaining about their electricity bill, environmentalists and all these other groups with comments and complaints, but he was spectacular – he was cool, calm and respectful even though some of the questions, such as one about cosmic energy, were borderline insane.’
It’s an experience Tonkinson knows well. ‘Of course there’s a lot of gratuitous stuff we listen to at these meetings, but we’d rather get it directly from our shareholders than through a consultant,’ he says. Some experts say chairmen should allow for some quality think time to focus on what the AGM means and what shareholders expect from it. In this sense, IROs can’t tell chairmen what’s going to happen, but they can help them prepare for the unexpected.
‘IROs speak to the retail shareholder base throughout the year,’ says Kristine Walczak, senior vice president at Dresner. ‘So the best thing is for them to keep a list of the sort of questions they’re asking, and look at questions from previous conferences, both their own and those of their peers.’
More than just an opportunity for shareholders to exercise their rights, the annual meeting is an important bond-building exercise with a company’s stakeholders. Firms can use the AGM as a platform to leverage their communications efforts. In the worst-case scenario, the AGM puts management on the spot – but, in the best cases, it makes companies more responsive to genuine shareholder concerns as they emerge.
