In an age of continuous disclosure and electronic communication, the shareholder or annual general meeting (AGM) is being pilloried for being archaic. It’s been a long time since shareholders have actually needed to attend these meetings to find out about past or future company performance – this information is normally released as part of the full-year results announcement, possibly months before the AGM.
More often than not, the AGM is little more than a chance for retail shareholders to come face to face with management. Increasingly, however, companies resent special interest groups using AGMs as a public platform for their grievances.
In Australia, pressure groups have hijacked AGM discussions for their own benefit, leaving other shareholders disenfranchised and unable to have their opinions heard. It is not surprising, therefore, that many are beginning to question whether the AGM is still a viable investor communications tool for companies and shareholders.
AGMs revisited
According to the Business Council of Australia, the AGM should survive, albeit in a different format. One of the most popular suggestions is to allow shareholders to propose topics for discussion during the meeting or even to formally add agenda items to the notice of meeting. Another idea is to hold more regular shareholder briefings, or even annual shareholder roadshows.
In determining the shape of the shareholder meeting of the future, one of the key decisions is how to handle the election of directors and shareholder voting. The Australian government is exploring a range of different options likely to radically change voting mechanisms. One of the suggested key reforms is the introduction of direct virtual shareholder voting on company resolutions. This has been possible only since the development of voting software that enables shareholders in any location to vote and allows companies and their share registry to tally scores easily.
Under a system of direct voting, shareholders vote without having to cast their vote by proxy. This avoids the problem of representatives not voting their proxies and ensures each vote cast is counted. Currently, shareholders can cast a vote by proxy but, if the proxy elects not to exercise it, your vote doesn’t count.
Ian Matheson, chief executive of the Australasian Investor Relations Association (Aira), is critical of the faults within the current system and supports the introduction of direct voting. ‘Aira endorses direct voting by post, fax, electronic communication and telephone,’ he says. ‘If direct voting were to be adopted by companies, the process of voting by a show of hands could be limited to procedural matters arising in the course of meetings and not be available for matters that are the subject of the notice of meeting.’
Although the introduction of direct voting for shareholders sounds like common sense, it has its critics. Richard Gilbert, chief executive of the Investment and Financial Services Association (Ifsa), which represents institutional shareholder interests, says the current proxy voting system works very well. He argues direct voting ‘could be a messy way of handling institutional voting. A rigorous cost benefit analysis needs to be done – the current system has considerable benefits.’
There is actually nothing stopping companies from introducing direct voting now; the government is not proposing to abolish proxy voting altogether. Rather, proposals aim to give firms the option of using direct voting in conjunction with other voting mechanisms.
Opponents of the direct voting system argue that its introduction will mean shareholders won’t bother showing up at AGMs – why bother turning up if you’ve already had your say?
Ed Stockdale, managing director of Computershare’s investor services, doesn’t think direct voting will see the end of the AGM, but he does question the level of resources companies expend on it. ‘Over the last few years, unless there’s been a controversial issue, the majority of people at the bigger AGMs have been small retail shareholders,’ he notes. ‘AGMs are getting to be costly exercises. We need to ask how we can be more efficient in running them.’
Vote for activism
It’s likely the debate about the survival of the AGM will focus more on the motivation behind the government’s review of shareholder voting: to encourage shareholders to become more involved in company governance. The question should be asked whether shareholders, especially institutional shareholders, will actually vote more frequently under a direct voting system – particularly as it’s already compulsory for Ifsa members to vote on company resolutions, although this is a system that is not policed. According to Gilbert, ‘93 percent of fund managers already vote.’ Given such a high percentage, it’s questionable whether participation could be increased by introducing direct voting.
Stephen Munchenberg, general manager of corporate and regulatory affairs at the Business Council of Australia, agrees that the introduction of direct voting is unlikely to increase the level of institutional voting. ‘Institutions prefer to operate behind the scenes,’ he points out – and the introduction of direct voting won’t influence this.
Trade-off troubles
Although the introduction of direct voting may not encourage more institutions to vote on the stock they own, should the change go ahead it will likely have a number of different consequences, particularly on retail investor communication. Anthony Tregoning, managing director of specialist IR consultancy Financial & Corporate Relations, says one of the key issues companies could face is maintaining consistent communication with all shareholders, not just institutions.
‘Greater voting participation by institutions is likely to force companies to pay more attention to their institutional shareholders,’ Tregoning observes. ‘The risk is that, in communicating more frequently with fund managers and answering their questions, companies will be perceived as favoring them with information at the expense of smaller investors. This will reinforce the need for a disciplined approach to continuous disclosure and for companies to communicate directly with all their shareholders, rather than rely on media reports and on Australian Stock Exchange (ASX) announcements, which many retail shareholders do not see.’
This approach is particularly important as retail shareholders will more easily be able to vote on company resolutions if direct voting is introduced. As most firms would need to change their constitution to include direct voting as a legitimate shareholder voting mechanism, however, it’s likely to be some time before it is common practice among companies.
