Make Annual Group Meetings Exciting!

Recently, I was made aware of an article on how Annual Group Meetings (AGMs) for companies on the Australian Stock Exchange (ASX) are a dying tradition. The article is based off the Benchmarking Listed Company Secretarial Practice in Australia 2014 report by the Governance Institute of Australia (side note: it is unfortunate that half the media release was used to advertise the demise of CAMAC). You have to purchase the report to read it. Since I am not willing to cough up the 650 AUD, this blog will based off what I have read in the media.

Summary of the News Article and Press Release

The report finds that the current form and function of AGMs is becoming irrelevant to retail (mum and dad) investors in today's world. The cost of staging an AGM has increased by 38% while the proportion of shareholders turning up is dropping (now less than 1% of the shareholder base). The report noted that 53% of shareholders were not interested in receiving (lengthy) annual reports. The problems stated by the report are that AGMs are not engaging for the shareholders and shareholders don't see the AGM as a decision-making forum. Proxy votes have to be in before the meeting starts and most of the voting power is with large (institutional) investors.

The suggestion is for companies to improve their AGMs by engaging with their shareholders and turning the AGMs back into decision-making forums. The voting and engagement functions of AGMs should be separated out to give shareholders more time to consider their votes after they have had time to engaged with the company (in the form of hard hitting questions).

Thoughts

My initial thought was to disagree and instead postulate that the problem lies with a growing proportion of lazy shareholders. These are shareholders who have bought shares in a company because of a recommendation by a friend, share broker, or crystal ball. Without having made much effort to research the company before buying their shares, these shareholders choose to be disengaged with the company. Shareholders should feel the privilege of being part of an elite group who can say that they own a (successful, famous, prominent, proud) business.

The idea that many shareholders are not interested in receiving annual reports is certainly alarming (I don't know if the report considered shareholders who download the reports in lieu of physical copies). When you buy shares in a company, you expect the company to do great things with your money and you expect to be paid back once the company has matured. You would never loan out your money without expecting it back; otherwise it wouldn't be a loan. The reports and AGMs are a way for shareholders to keep their money in check and to hold the company accountable when it fails to deliver. AGMs usually end with shareholder questions and is the time for shareholders to speak up. If shareholders are too shy to speak in front of an audience, they can talk to the CEO and company representatives after the AGM has concluded. 

Annual reports begin with a short commentary of the financial year: what the company has achieved so far and what it hopes to achieve in the long term. Reading just this section will give you an overview of how the big guys in the company think the company is going. You do have to read between the lines to look past the sugar coating for the (potentially unpleasant) facts. Having a good fundamental knowledge about running a business definitely helps and you will feel less afraid and bored of reading annual reports. We should think about instilling business knowledge into our children so that they have the willpower to read and digest annual reports.

A way to increasing shareholder participation and interest is to create an educational forum where shareholders can discuss about companies, mainly to gain an unfair advantage on their understanding of various companies. Many shareholders are interested in discussing the future of companies and their performances. Sharetrader is one such example where healthy discussions occur frequently for many companies. 

Most annual reports are lengthy only in their financial statements. The bigger the company, the longer its financial statements and the more ominous they look. To combat this, shareholders should learn what key metrics they should look out for in the financial statements to get a feel of the company's financial performance (fundamental analysis). For more an in depth analysis, shareholders should be able to rely on the work of professional share brokers.

Without having access to the report, I do not know if they break down the type of shareholders who are disengaged with the company. It could be that more shareholders are traders and only care about the daily price fluctuations. It could be that companies now have larger base of international investors who cannot physically make it to the AGM. It could be that less people are able to make it to AGMs (which are held during working hours) because lifestyles have changed through the years.

There are companies that are majority owned by large private shareholders and therefore have majority control of the company, and so it is not surprising for the small shareholders to feel insignificant. However, for companies with a large base of small shareholders, the shareholders should not fall into the fallacy that they shouldn't bother voting because of they have a small voting power. Small shareholders need to realise that their collective voting power can be quite significant. This is evident during government elections, where every vote counts!

But

Having recently attended a rather dull AGM, companies should make an effort to rouse up excitement among their shareholders. If shareholders aren't excited about the company, then why should the customers be excited to use their products or services? An AGM is also a time for the company to celebrate great successes with its shareholders. Companies should strive to teach something new to their shareholders to show that they are keeping with the times and know what they're doing; e.g., business practises, customer behaviours, marketing strategies, or pricing models. AGMs should be a place where attending shareholders feel that they are gaining an unfair advantage over those who don't turn up; being able to ask sensitive and personal questions to the CEO, get to know the people running the company, get product/service demos so that you have a better understanding of what customers are buying, and explanations beyond what has been written in the annual report. AGMs should be a convenient excuse for shareholders to meet up, have a good time, share their personal views and strategies, and to network or make new friends.