Does the AGM have a future?

 

So does the AGM have a future? Steven Cole, Fellow of the Australian Institute of Company Directors, argues that it should.

The annual general meeting, or AGM, is a fixture in the Australian corporate landscape, enshrined in legislation so that companies and shareholders can move forward together. The law tells companies when they must have their AGM, who must attend, and what must be included on the agenda. But is the AGM becoming a dinosaur, with limited relevance today? Many shareholders, investors, companies, directors and other commentators have suggested it may be.

In his paper, “The Future of the AGM—don’t throw the baby out with the bathwater”, Steven Cole says that the AGM is still a vital instrument of effective corporate governance. He analyses the underlying concerns of the critics, hoping to head off the discontent which could otherwise endanger the continuance of the AGM itself.

Mr Cole first reviews for us the purpose of a corporation’s annual general meeting. In this forum management must account for the performance of their organisation over the previous year, and put forward their intended strategic direction for the near future. Members of the organisation can use their votes to influence certain decisions, such as the appointment of board members or changes to the organisation’s constitution. The AGM allows members to ask questions of management regarding their interests in the organisation, and have them explain the basis of their forward strategy.

Won’t these functions always be useful and desirable in any company? Of course, and shareholders and investors have seen boards and companies become steadily more accountable and transparent, often because of a tightening of legislative and regulatory requirements. They also enjoy easier and more timely access to annual reports, published financial statements and other AGM documentation.

Mr Cole outlines several criticisms of the Australian public company AGM, but carefully examines whether or not it is the AGM itself that is failing. For example, information once available at the AGM is now readily available in the marketplace from other sources. Rather than a shortcoming of the AGM, Mr Cole argues that this situation arises because of enhanced continuous disclosure obligations and expectations.

In any case, no one wants to waste time in a meeting to discuss information already known to everyone present. Yet there must still be a forum for voting of senior officers, and an opportunity for shareholders to put questions to the board. For these reasons the AGM must stay, and so Mr Cole presents many suggestions on aspects of the AGM from a wide range of sources.

Suggestions include multiple venue and virtual AGMs for the convenience of shareholders; improvements to meeting information flow, such as briefings, webcasts or podcasts leading up to a preliminary shareholders’ meeting; and improved use of audio/visual technology rather than pre-typed reports being read from the podium. Mr Cole suggests more information be made available on directors standing for election, and that perhaps existing directors, in addition to the CEO and the Chair, have opportunity to answer shareholders’ questions at the AGM. He also addresses shareholder activism, where minority shareholders may in effect sabotage an AGM.

Mr Cole concludes that the AGM does indeed retain valid and important roles in sound corporate governance. The AGM process should be improved, rather than replaced or abolished.

Read the full paper, “The Future of the AGM – don’t throw the baby out with the bathwater” here.