This article first appeared in the November issue of Boardroom magazine.
Is the Annual General Meeting about to follow the Dodo into extinction - if not within the next five years, then within the next ten?
It is a fair question to ask, not least because the Australians are currently asking it. And in these days of trans-Tasman co-ordination, where they go we tend to follow.
The Corporations and Markets Advisory Committee (CAMAC) has, at the request of the Australian Government, put the future of the AGM on the line in a discussion paper “The AGM and Shareholder Engagement” which was released in September with submissions due by 21 December 2012.
A poll by corporate law firm Allens Linklaters of its listed clients, timed to feed into the CAMAC review, found that 73% wanted significant reform and that 40% wanted to scrap the AGM altogether (although a larger proportion, 47%, thought this was a step too far).
AGMs are expensive and increasingly hollow exercises, if the level of shareholder participation is the benchmark. Figures collected by the Australian Institute of Chartered Secretaries shows that attendance rates have dropped like a stone and are continuing to fall – going from a dismal 1.5% by number in 2007 to an even more dismal 0.3% in 2009 (although others will be voting by proxy).
The AGM is the victim of a number of different but intersecting trends – the rise of the institutional investor, the globalisation of financial markets, cross-country shareholdings and dual listings. But, while these developments may challenge the AGM’s relevance for increasing numbers of shareholders, it is technology which may (will?) eventually render the AGM redundant.
It developed in a very different world, when the only means for shareholders to interact and discuss issues relevant to their company was through a physical meeting at a predetermined location. Since then, market disclosure rules have reduced the AGM’s significance and the advent of electronic communications has created other communication avenues.
Around 70% of large and medium-sized listed companies in Australia webcast their AGMs live on their websites. The practice is less common here (about 15% of the top NZX 50 according to one estimate) but is growing and will probably get a further growth spurt from legislative amendments in force since 31 August which:
provide explicitly that shareholders may cast proxy or postal votes electronically (in Chapman Tripp’s view, this was already provided for under the Electronic Transactions Act but is now also written into the Companies Act), and
allow for direct electronic voting on resolutions at AGMs and other shareholder meetings.
The first provision catches us up with the Australians. The second puts us ahead.
ASIC approved internet voting in 2008 but requires that on-line votes be cast 48 hours ahead of the AGM, which means that shareholders who participate by webcast cannot defer their vote until they have heard the company’s presentation and the discussion around it. Also, the legal position is fuzzy because, while the Corporations Act does not prohibit real-time on-line voting, neither does it specifically allow it with the result that companies are reluctant to move until they have law change.
CAMAC has put up four options for consultation.
1. Limit the AGM to deliberative and decision-making functions.
The AGM would be restricted to the discussion of and voting on the remuneration report, the election of directors and other resolutions placed on the agenda. Alternative mechanisms would be developed to ensure appropriate reporting to shareholders and to safeguard their questioning rights. These might include web-based corporate briefings, circulation of the annual report and a question and answer section on the company’s website.
2. Separate out the reporting, questioning and deliberative functions of the AGM from the decision-
Under this scenario, voting would stay open for a set period after the AGM, enabling shareholders, particularly retail, to have the opportunity, even if they were not able to attend the meeting, to reflect on the questions posed and the directors’ responses and any other issues which may have been raised.
3. Moving away from the ‘one size fits all’ approach to the AGM to a more flexible system which better
reflects the particular characteristics and requirements of the organisation.
This idea developed out of the Allens Linklaters survey, which found that the relevance of the AGM depended on such factors as the size of the company, whether it was listed or not, the nature of its shareholder base and whether it was undergoing major change or in consolidation mode. Matters that would need to be resolved would be how the business of the AGM might be adjusted for different types of companies and whether that would be a matter for the company to determine or be externally regulated.
4. Abolish the AGM.
This is the most radical option and probably the most unlikely because, although the AGM is beginning to look like an anachronism in many respects, it would still be a big decision to abandon it entirely. As CAMAC notes:
“Those supporting the retention of the AGM, in its current or some other form, can point to the opportunity it creates for participants, including institutional shareholders if they consider that there is a need, publicly to express their position or concerns on matters of importance to them, and to ask questions directly to directors and others who are under a duty to act in the best interests of the company”.
Geof Shirtcliffe is a partner at Chapman Tripp specialising in corporate law and governance.