The annual shareholders’ meeting has been compared to an elaborate wedding that one must plan, Groundhog Day-like, year after year. Many executives say – anonymously, of course – that they dread it as much as children’s birthday parties.
For many companies, the annual meeting is perceived as a trial of public accountability, where reclusive directors are hauled into the daylight to be peppered with speeches and impolite questions from shareholders, financial reporters and the dreaded gadfly. But for other companies, they seem to be sleepy affairs attended by a handful of retirees worried about their pensions.
‘It’s like, Here’s your punch and donut, happy now?’ sneers one corporate veteran with a resumé full of investor relations and other financial positions. ‘I send my assistant down to mingle and tell her to call me if anyone from a fund shows up.’
Disdain aside, the annual general meeting, or AGM, is a requirement for nearly all companies. Firms are compelled to discuss earnings and explain significant issues in scripted legalese that has been painstakingly translated into plain English. The chief officers and board members are supposed to be available for questions. There’s coffee and pastry, because there has always been coffee and pastry. And while much of the time the AGM may be considered just an annoying formality, getting it wrong can have significant consequences, as some companies have recently discovered.
Year after year, investor relations officers, communications experts and corporate secretaries work to develop scripts. You anticipate questions. You prepare your CEO and CFO on what to say and what not to say. And then there is the coaching of the board members, most of whom would rather be competing naked on Survivor than facing down a half-empty room of shareholders who have their own wildcard concerns.
A necessary evil
‘It’s safe to say that management would probably prefer not to have the AGM,’ says Ron Warren, corporate secretary for smarTVideo, an Atlanta-based provider of streaming video for cell phones and other portable devices. This small-cap company has shares only available by private offering, with warrants and restrictions, to selected high-net-worth investors. It has a small and somewhat sophisticated pool of shareholders. And yet, even when smarTVideo held its AGM in southern Florida, where most of its private investors live, the turnout was pretty light.
This is fine with Warren, who estimates he works on the AGM for nine months of the year. He says he keeps a file with potential questions and sample answers. He helps prepare government filings and adapts that information for shareholder consumption. He gets proxies together and sends them out. He says he makes time to work with the directors so that they can answer questions, which in the past ‘have gotten a little bit personal.’
The company has undergone a management purge, Warren says, and the new team is doing fine, but resentment about earlier decisions has lingered long after the old team left the company. ‘Last year I prepared for activist shareholders and angry shareholders and they didn’t come,’ he says, with the relief of a man who has dodged a bullet.
Everyone must attend
A word on directors: have them all show up, label them with nametags and park them around the coffee urn during the premeeting mingle. Seat them facing the audience, not in the front row with their backs to investors, and be sure the head of the compensation committee is there.
Unless you’ve got horrific earnings or a major management problem – more on Home Depot later – you generally have a script you follow and hope for the best. That script, of course, is unique to your own company and your own issues. While there should definitely be a large element of tailoring, it is possible to find a couple of good templates to help you get started. Most companies say they follow their blueprint from previous years.
Canadian energy company Nexen voluntarily files under the US disclosure model. Sylvia Groves, assistant corporate secretary and manager of the governance office at the company, says she keeps an AGM binder and sample proxy on her desk and consults it all year. After a while, she says, the meeting becomes a project under continuous improvement – a complex but routine experience. ‘With all that work, it is like getting married once a year!’ she laughs. ‘There are so many people and so much preparation involved, and there’s a really good chance that some weird little thing is going to go wrong but no one will even notice.’
Few elements of the AGM are left to chance. There are rules governing exactly when they must be held, but preparation is usually a year-round affair. Many companies are looking to streamline the various tasks involved; some are turning away from the printing and distribution of a glossy annual report in favor of a 10K wrap or electronic statements, for example.
For those needing help with AGM planning, the Society of Corporate Secretaries and Governance Professionals has just issued a deeply detailed calendar, including reference materials. For more details, visit www.governanceprofessionals.org.
Where to hold your AGM?
Most companies use the same corporate auditorium or hotel conference room year after year. The advantage to this is that you generally know how many attendees to expect and have worked with the same audio-visual teams and caterers, so less is likely to go wrong at the last minute.
Another creative and potentially costeffective solution is to contact the regional business office of a local movie multiplex. Many of these are happy to rent an ppropriately sized theater and arrange for coffee urns and food in the morning, when they aren’t screening films.
You might assume that the AGM is a good opportunity to make use of your company’s webcasting capabilities and to feature the meeting in streaming video. In principle most IROs and corporate secretaries would agree, but upon reflection, they say, it’s better to keep the meeting as simple as possible. ‘Honestly,’ says one, ‘I would say to do what you have to do and not a lot more. The idea is to get in and get out with as few surprises as possible.’ He notes that if shareholders can’t make it to the meeting, ‘technically, they aren’t missing anything.’
One reason AGMs have a bad reputation – both with the institutional investors who generally don’t bother to attend and with the corporate officers and directors who would rather fake prostate surgery than show up – is the potential presence of unruly guests who can try to hijack the meeting. Ask corporate directors with more than two decades of service about their AGM nightmares, and they’ll eventually tell you about Evelyn Davis, a proudly old-school gadfly who has never met a board of directors she couldn’t terrorize.
Today many companies are concerned about ‘insurgents’, the shareholders who are trying to force a proxy or governance issue that could be anything from a stock buyback to hiving off profitable or orphaned divisions to socially responsible corporate practices.
There will always be surprises; dealing with them is a matter of being ready for anything. ‘When an annual meeting has a circus atmosphere, it’s because the company doesn’t take it seriously and doesn’t put a lot of effort into it,’ says Bob Lamm, managing director, associate general counsel and corporate secretary at FGIC, who has also worked for WR Grace and Computer Associates. ‘Companies need to treat AGMs with respect.’
Work with your shareholders
The secret to success? Practice, preparation and a bit of prayer. Some experts suggest observing the AGM of a peer company or a supplier: how do they handle the social, legal and corporate implications of meeting investors?
There is a significant part of the meeting that management can control, and experts say this is management’s best opportunity to communicate directly with the company’s shareholders. Remarks at the top of the meeting can and should elucidate on the health and direction of the company as well as its future.
The AGM is a rare opportunity to listen to the concerns of shareholders directly and to address them in plain language, unfiltered by legal requirements or journalistic expectations. At the very least, experts say, have enough respect for your shareholders to show up at the annual meeting you’ve invited them to attend.
The cautionary example, of course, is Home Depot, the oncemonolithic retail chain that has seen profits eroded by competition and some questionable strategic decisions. At its AGM last May, board members didn’t even show up, and the only corporate officer in attendance was Robert Nardelli, the company’s president, chairman and CEO. After facing down a large and buzzing conference room, he read his script and then left, refusing to answer questions from investors.
‘Home Depot is the poster child for bad response to shareholder activism,’ says Jay Eisenhofer, a Delaware lawyer who commonly represents shareholders in class actions and corporate battles. ‘How can you not allow shareholders to ask questions?’
