Blake Dawson Waldron has conducted a survey of 76 annual general meetings (AGMs) held since October 2006. The purpose of the review was to identify the practices and procedures employed at AGMs in 2006 and determine whether any trends have emerged since BDW’s 2005 AGM review.
The final report 2006 AGMs: Review and Results (available on our website www.bdw.com under Publications), was published on 14 May 2007 in conjunction with the Business Council of Australia (BCA) and Chartered Secretaries Australia (CSA).
A brief outline of this project and the key findings are set out below.
Background to survey
In March 2006, Blake Dawson Waldron published a report entitled Review and Results of 2005 AGMs in conjunction with the BCA. The report highlighted the different practices and procedures employed at 61 AGMs held in 2005, with a particular focus on shareholder engagement and the impact of the Corporate Law Economic Law Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (otherwise known as CLERP 9).
Since October 2006, lawyers from BDW have attended 76 AGMs, primarily to identify the practices and procedures used at AGMs in 2006 and whether any trends have emerged since 2005. The results are published in 2006 AGMs: Review and Results.
The companies surveyed during 2006 included 42 S&P/ASX 100 companies, 17 S&P/ASX 100-200 companies and a further 17 listed companies outside the S&P/ASX 200. The companies surveyed included most of the companies surveyed in 2005, plus an additional 17 companies.
The 2006 AGM survey gathered data on a number of areas, including calls for questions by companies before the AGM, remuneration – related resolutions, director participation, the involvement of the auditor and special interest groups, voting, other procedural matters and constitutional amendments.
In March and April 2007, a series of discussion forums were held in Melbourne, Sydney and Perth. These sessions were attended by more than 100 people, including listed company representatives, representatives from share registries and a proxy advisory firm. The purpose of these sessions was to:
- discuss the quantitative data, with a particular focus on trends emerging between 2005 and 2006; and
- obtain feedback on the possible reasons for these emerging trends.
The 2006 AGM report includes the detailed survey results and possible reasons for any emerging trends, as canvassed during these AGM sessions (all feedback received has been incorporated on a "no-names" basis).
On the whole, the practice of AGMs did not change dramatically from 2005 to 2006. The survey does indicate, however, some developments which are interesting, especially in light of research conducted by CSA which indicates that there continues to be a declining number of attendees at AGMs.
Outlined below are some of the key survey findings.
Call for issues before the AGM
- Call for business management questions
In 2006, a similar number of the companies surveyed called for questions (concerning business related issues) to be submitted to the company before the meeting.
Participants in the AGM sessions agreed that it assists the company to prepare for its AGM if it receives advance notice of common questions. In particular, it helps the company to structure its response to common shareholder concerns and, in the case of a company in the retail sector, sift out customer complaints. However, the company must weigh up the desirability of spending a large amount of management time collating and analysing questions before the AGM with the possibility of more agitated debate at the AGM itself (if questions are not called for before the meeting).
During the AGM sessions, it was postulated that top 200 companies are more likely to call for questions to be submitted before the AGM, as smaller companies may not have the resources to trawl through potentially thousands of questions.
This observation is supported by the results of the 2006 AGM survey.
- Response by shareholders
If companies invited questions in advance, they generally received a response. In 2006, however, the shareholder response rate was lower, indicating that, on this measure alone, shareholder engagement is not improving.
During the AGM sessions, participants speculated that the lack of shareholder engagement may be due to the current buoyancy of the market. Shareholders are more likely to pepper the company with questions if it reports poor financial results or announces a dividend which is lower than expected.
Remuneration report Resolution
- Presentation on remuneration report
In 2006, separate presentations on the remuneration report were less common.
In the vast majority of cases, the remuneration report presentation was given by the Chairman (the remaining presentations were made by the Chairman of the Remuneration Committee).
Participants at the AGM sessions offered the following reasons for the decline in the number of separate remuneration report presentations:
- the remuneration report is so detailed that there is no need to give a separate presentation;
- the remuneration reporting requirement was new in 2005 and so there is less uncertainty on how best to deal with it; and
- the remuneration report is just another compliance requirement (among many).
Many participants felt, however, that it is useful to give a separate presentation on the remuneration report to focus the attention of shareholders on certain issues at the AGM. In particular, the way in which the remuneration report is presented can affect voting on the resolution.
- Non-binding vote
As for the 2005 AGM survey, we analysed whether the companies expressly indicated to shareholders at AGMs that they would take account of non-binding votes on the remuneration report. A majority (but declining) number of companies continued to make a positive statement of this kind.
It should be noted, however, that whether the company makes a positive statement of this kind is not a clear indication, of itself, as to whether the company is taking the non-binding votes into account. For instance, there is no evidence to suggest that companies which don’t expressly indicate at the meetings that they will take account of non-binding votes, fail to take account of the vote. Importantly, it can be assumed that Chairmen generally do take account of shareholders’ views.
Participants at the AGM sessions indicated that companies were generally more comfortable with the voting procedure on the remuneration report in 2006. This may be attributable to the fact that the remuneration reporting requirement is no longer brand new.
Some participants at the AGM sessions suggested that a positive statement of this kind is unnecessary if there was sufficient proxy support for the resolution.
- Vote order
Slightly more companies elected to place the remuneration report vote after director elections. In 2006, approximately 50% of companies surveyed placed the vote before director elections and the remaining companies placed the vote after director elections.
The 50/50 split in the 2006 AGM survey results was also reflected in the feedback received at the AGM sessions.
Some participants thought it best to hold the remuneration report vote before director elections. They noted that it makes sense to vote on the remuneration report vote straight after consideration of the accounts, as they both deal with historical matters. Director elections (which look to the future) should be placed last on the agenda.
Other participants thought it important to hold the remuneration report resolution last. They suggested that it is best to conduct the binding business first, while interest in the meeting is still fresh and attendance is assured.
- Voting results
The remuneration report was adopted at each of the meetings surveyed.
Remuneration report is generally supported – At two-thirds of the meetings surveyed, the proxies cast against adoption of the remuneration report were less than 5% (this was similar to the 2005 survey result). Participants in the AGM sessions generally agreed that if the company is performing well and meeting its dividend expectations, shareholders are unlikely to vote against the remuneration report.
Negative proxies – In 2006, 6 companies had more than 25% of the proxy votes cast against adoption of the remuneration report, compared with only 1 company in 2005. In 2006, shareholders were more likely to object to the remuneration report than specific fee increases to non-executive directors (NEDs) or to equity awards to executive directors.
The majority of these 6 companies performed well during the year and so it is not possible to conclude that the negative proxy vote was attributable to poor financial results. Similarly, it did not appear that shareholders who cast negative votes were concerned about inadequate disclosure or specific aspects of the remuneration. Many of the affected companies reported that the negative proxy vote was, in part, attributable to a negative voting recommendation from proxy advisory firms.
- NED fee pool vote
One-quarter of the companies surveyed sought shareholder approval to increase the remuneration paid to NEDs. The vast majority of these companies sought a fee increase which was more than 20%, and most had last sought a fee increase between 2 and 4 years ago.
- Voting results
All of the NED fee increases sought were approved by shareholders.
At slightly more than half of these meetings, the proxies cast against approving an increase in NED fees were less than 5%. In fact, negative proxies cast against adoption of this resolution were less than 10% at all meetings surveyed.
Some participants in the AGM sessions noted that shareholder approval for director fee increases is more likely to be obtained when the company is performing well.
- Reason for increase
In most cases, one or more reasons were cited as justification for an increase in NED fees.
The most common reason was the company planning to increase the size of the board. Other reasons included the necessity for NED fees to be competitive with market rates, attracting and retaining persons with the necessary skills and competencies, and directors facing an increased workload.
Executive director Remuneration
- Equity award resolutions
Approximately one-third of the companies surveyed sought shareholder approval to make specific equity awards to executive directors. Slightly more than onehalf of these resolutions concerned awards to the Managing Director. Most of the resolutions sought approval under ASX Listing Rule 10.15 for equity awards to be made within 12 months of the date of the meeting.
- Voting results
All of the equity award resolutions surveyed were passed by shareholders.
For slightly more than one-half of these resolutions, the proxies cast against approving an equity award were less than 5%. In fact, only 4% of the total equity award resolutions produced negative proxies of 25% or more.
- Nature of incentive award
The most common form of incentive for which approval was sought was shares awards, on terms which generally imposed restrictions or vesting periods as part of the award. Other award types included the grant of performance rights and options.
- Source of shares
Slightly less than half of the companies concerned indicated that they would satisfy the equity awards by issuing new shares. Some companies reserved the right, however, to choose whether the source of shares would be a fresh issue, or whether the shares would be acquired on-market for the benefit of the recipient.
- Questions for the auditor
It was extremely uncommon for shareholders to question the auditor, either before the AGM (under section 250PA(1) of the Corporations Act 2001) or during the meeting itself.
Participants in the 2006 AGM sessions offered the following reasons for the lack of shareholder engagement on this measure:
- AIFRS makes the accounts so complicated that shareholders (especially retail shareholders) find it difficult to ask questions; and
- shareholders are more likely to engage with the company on auditing matters if the company is experiencing financial difficulties or if a qualified audit report is given.
- Audit questions to company
Substantially fewer companies received questions about audit-related matters at the meeting itself.
Participation by directors
- Directors seeking election or re-election
It was slightly more common in 2006 for a director seeking election or re-election to the board to give a presentation in support of the resolution.
Participants in the 2006 AGM sessions were generally split on the merits of candidates presenting to the meeting in support of their election or re-election.
Some argued that good directors are not necessarily good presenters and that it may detract from the collective responsibility of the board as a whole for company performance, policy and prospects.
Others argued that directors should be encouraged to give a presentation in this manner because it improves shareholder engagement at the meeting and it builds empathy between shareholders and directors by giving directors a human face.
- Presentations by other board members
It was extremely uncommon for Committee Chairmen to present to the AGM on the area for which they are responsible. Participants at the AGM sessions, however, recommended that companies should adopt this practice as it improves shareholder communication and makes the AGM more interesting.
- Other board participation
Directors other than the Chairman and the Managing Director responded to shareholder questions at only one-quarter of meetings surveyed. The finance director’s participation was the most common.
Special interest groups
Special interest groups were more active in 2006. In particular, these groups dominated question time (by asking more than 50% of the questions asked) at one-quarter of the meetings surveyed.
Participants in the 2006 AGM sessions noted that it is important for special interest groups to demonstrate to their members that they are actively seeking to further their interests (this may explain why some groups asked questions at the AGM which had apparently been previously discussed with the company before the meeting).
Others noted that it is important to engage with special interest groups before the meeting and that, provided the input is cordial and measured, the contribution of special interest groups can be productive.
- Show of hands
Voting was generally conducted on a show of hands.
Companies elected to put one or more resolutions to a poll at less than one-third of meetings.
In some instances where polling was used as the method of voting, shareholders expressed concern that the "sense" of the meeting was not ascertained through a show of hands before the resolution was put to a poll.
There was limited up-take of electronic polling. At the 2006 AGM sessions, participants who used an electronic polling system reported positive shareholder feedback. The main reasons for the reasonably limited uptake of e-voting were:
- cost concerns (the hardware is particularly expensive); and
- to a lesser extent, concerns about reliability (participants at the AGM sessions noted that this issue appears to have been resolved between the 2005 and 2006 AGM seasons).
- Display of proxy votes
Most companies continued to display proxy votes after discussion and before the voting took place.
- Engagement of shareholders who are not able to attend AGM
A number of companies use varying means to communicate with shareholders who are unable to attend the AGM.
Half of the meetings surveyed were webcast (this was similar to the 2005 AGM survey result).
One company set up a videoconference facility which enabled shareholders located in a different State to participate in the meeting. These shareholders were permitted to ask questions but were not able to vote at the meeting itself.
Participants in the 2006 AGM sessions suggested that the following measures might also assist a company to engage with non-attending shareholders:
- rotating the location of the AGM from year to year;
- mailing a copy of the Chairman’s and Managing Director’s presentation to all shareholders; and
- holding regular information sessions to which all shareholders are invited.
Slightly fewer companies chose to seat all of the directors on the podium. A number of other combinations were utilised, including:
- the Chairman, Managing Director, CFO and company secretary;
- the Chairman and Managing Director only; and
- the Chairman, Managing Director and company secretary only.
The company secretary sat on the podium at one-quarter of the meetings surveyed.
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