The Annual Meeting: From Gloss to
Directors & Boards ran an important series of articles in its 1st
quarter 2011 magazine on Fixing the Annual Meeting. Some excellent ideas
are put forward, especially if we parse out the thoughtful from the
One of the most dramatic ideas, central
to any real attempt to actually make annual meetings worthwhile, is the
major survey finding by
David Shaw, publishing Director of Directors & Boards. 90% of
shareowners responded that annual meetings are “very important” or
“somewhat important.” Contrast that with 78% of public company directors,
who responded that annual meetings are “somewhat important” or “not very
important” or “not at all important.”
Until directors recognize the importance
of annual meetings to the shareowners they are supposed to represent and
take their related duties seriously, the schism is likely to remain or
Let’s look at the advice given by authors
in this focus issue, starting with those given the largest space, since we
can presume those authors reflect the most conventional wisdom (assuming
Directors & Boards, a very prestegious publication, has been able to
attract the leading thinkers).
By far the largest space is given over
T. Hagberg, an expert, having served as inspector of elections at
hundreds of annual and special shareowner meetings. He is dedicated to
helping companies “optimize their spending on investor relations and on
their investor servicing programs” and has been awarded the highest honor
bestowed by the
Society of Corporate Secretaries and Governance Professionals.
Hagberg first lays out why annual
meetings appear to be a waste of time and money.
- “At the vast majority of them, nothing
of significance ever happens.”
- “Average investors don’t care.” As few
as 10% bother to vote.
- A high portion of those who show up
are, “to put it kindly, out-and-out coo-coo birds.” “They hog the floor
to ‘introduce’ their proposals (which are already introduced in the
Although they appear to be a waste of
time and money, Hagberg isn’t ready to give up because:
- Senior managers and directors should
give an accounting of their stewardship.
- Annual meetings provide a
cost-effective ‘safety valve’ for emerging issues that “can
have an impact on a company’s long-term bottom line.”
- They present a “truly unique
opportunity” to size up the leadership team “and the real culture of the
Hagberg offers several fixes:
- Virtual-only meetings for those
12,000-plus companies with “nothing controversial on their agenda, and
who typically have no one show up…” Hybrid meetings are an option for
750 companies “that like their annual meetings and think they add
- Virtual forums before shareowner
meetings can serve as “an early warning sign” and “useful
pressure-release-valve” in a controlled environment.
- Companies need to educate shareowners
about why annual meetings matter.
- Design packages and meetings to
command attention, not legality (although you still need to accomplish
what is legally required).
- Provide instructions on how to
decide and why it is important to vote.
- Use the Internet as a marketing and
educational tool. Motivate shareowners “to pay a bit of attention,
cast their votes while they’re at it, and, ideally, vote with
Second place for space goes to Richard
Daly, CEO of
Broadridge Financial Solutions whose firm has a monopoly on integrated
voting/forum/virtual meeting platforms. While informative, Daley’s
recommendations boil down to a simple mantra, use our products.
One shareowner was among the major
contributors. David Silverman, of the Blue
Harbour Group, “invests in undervalued firms where there is an
opportunity to work in collaboration with management in order to bring
creative alpha generating ideas to assist in the unlocking and creation of
shareholder value.” Silverman’s recommends more discussion of governance
issues, since “governance informs quality decisions over the long-term.”
Show shareowners how the board and management eat their own cooking by
closely linking pay to longer-term value creation.
Smaller space is given over to
an excerpt from a seven year article from
Norm Augustine (retired chair of Lockheed Martin),
Gary Lutin (Shareholder Forum), and
Jeff Morgan, CEO of the National Investor Relations Institute).
Augustine reported that “no
self-respecting large shareholder would normally be seen dead at an annual
meeting, nor would most analysts.” Managers would rather get a root canal.
I don’t think any firm has embraced his five part plan that emphasizes
back and forth dialogue through an impartial mediator:
- In the annual report, provide a
“plain-English presentation” of the top 10 issues and how management
plans to deal with them.
- Shareowners submit questions they
would like addressed by management to an independent auditor.
- Auditor eliminates duplication and
irrelevance and submits to management.
- Management responds.
- “Shareholder voting would take place
by electronic mail or snail mail, again according to each shareholder’s
Gary Lutin boiled down his forum’s advice
to three simple admonitions:
- Shareowners want to hear from company
managers, not intermediaries.
- They want “Forum Tools” that can be
- They want to be able to ask questions,
know what others are asking and observe management’s response.
Jeff Morgan recommends viewing the annual
meeting in the context of other IR objectives: offering more ways to
connect, increasing transparency through better publicity and encouraging
directors to attend and engage.
More interesting recommendations came
from an assortment of commentators, investors and advisors many of whom
are not as well known for their opinions on annual meetings and whose
space was limited to 10o words or less.
Garland McLellan: Add meaningful exchanges between annual meetings.
Eleanor Bloxham: The board should report directly at the meeting on
how they added value for shareowners and stakeholders, as well as on
their plans to improve performance in future years.
Andrew Shapiro: Committee chairs should present their
accomplishments and goals for the coming year. Shareowner input should
be solicited and a dialogue held.
C. Warren Neel: Have audit and compensation committee chairs offer
planned comments to provide awareness of their work.
Mike McCauley: Directors should discuss items placed on the agenda
Glyn Holton and
James McRitchie: Hybrid meetings should become a testing ground for
independent facilitators, Q&A around each proxy item, and other measures
to facilitate real deliberation.
Matt Orsagh: Meetings should have “less-scripted discussion” of
risks and opportunities, with questions from shareowners.
Cornish Hitchcock: Directors should answer questions from
Let’s bring in one more voice from the
Boards & Directors issue that wasn’t included in the special section on
Chrles M. Elson, Director of the Center for Corporate Governance at
the University of Delaware appears much more respectful of shareowners
You will recall that Hagberg
characterizes a high proportion of meeting attendees as “out-and-out
coo-coo birds” who “hog the floor to ‘introduce’ their proposals.” In
contrast, Elson believes greater participation by shareowners and their
growing influence on corporate affairs is central to the modern corporate
That increased involvement began when the
SEC enforced the shareowner’s right to include proposals in corporate
proxies. This right, won by the Gilbert brothers, has taken “about 70
years to reach its potential.” (The shareholder proposal — the little
resolution that could)
Now, let’s look for input to one more
source, an expert in investor relations who believes IR is more than gloss
Dominic Jones recently wrote of the Cocal-Cola Company’s attempt to
reach out to investors before their annual meeting through an
online “shareowner forum.” CEO Muhtar Kent explained to shareowners: “As
an investor in our company, your voice is absolutely critical to our
future. This website was designed to allow you to more easily share your
voice and also vote your shares.”
But, as Jones points out, shareowners
can’t share their “absolutely critical” viewpoints with one another on the
platform used. Coke already has a better discussion forum, that does allow
for such interactions, its
Facebook page with 23 million fans.
representatives regularly patrol and participate in the Facebook
board, where anyone can start a new discussion topic and engage
with other page users and the company. Even shareholders
are showing up to ask questions, although no one from the
company seems to want to talk to them.
Their shareowners “forum” will seem to
many to be far from the once self-proclaimed “real thing.” “How Coke’s
shareholder website qualifies as a forum by any definition
escapes me,” writes Jones. “It seems like little more than a PR stunt.”
The Takeaway: Corporate culture matters,
not just to the brand loyalty of consumers but to the loyalty of
investors. If the opportunity to dialogue with shareowners at annual
meetings and to facilitate discussion about long-term challenges and
governance issues is taken seriously, companies are likely to retain a
large proportion of their shareowners each year who will stick with them
through thick and thin. If managements and boards view annual meetings as
a legal formality with “out-and-out coo-coo birds,” even if they make
glossy presentations, they are likely to face fewer but more hostile
attendees who are only interested in the short-term.
Over time, managements and shareowners
with the same values tend to gravitate together. At one extreme are
companies eager to show off their wares and have a genuine dialogue at
their annual meetings; think Berkshire Hathaway. At the other extreme are
companies like the one that inspired
Jim Kristie, Editor and Associate Publisher of Directors & Boards, to
focus an issue on fixing the annual meeting.
|It was an interesting
company, not performing well — a combination of industry ill winds
and shaky management. So I figured the CEO had some explaining to
do, and I wanted to see how he took advantage of this opportunity…
The meeting was over in 10 minutes.
Management ran through the process at a sprint, giving no
presentation nor taking questions.
Sure, investors might be willing to take
a gamble on a company with glossy presentation skills. Hold shares until
someone presents them with a better picture. However, companies who want
investors to become long-term shareowners must recognize they are
essentially taking on partners who will want to engage in genuine
discussion with each other, with management and especially with their
elected representatives. Companies that don’t use their annual meetings to
promote such discussions are missing an important opportunity.
Disclosure: The publisher of CorpGov.net has investments with a fund
run by Andrew Shapiro and with Berkshire Hathaway.
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