ANNUAL General Meetings (AGMs) are always an interesting yearly affair, as one never really knows what to expect when shareholders get the chance to ask management their burning questions.
As a given, the usual “hot” questions surrounding the AGMs are :
What door gift are you offering today, and whether it is better than what another company has given?
What food are you providing, and whether it is better than the food at the other AGM? Or can we bungkus (pack) the food home?
Is my child, who is a minor, allowed to attend the AGM?
Is parking free?
Apart from these trivial issues, however, the other question frequently raised at AGMs is that of the directors’ fees. Commonly, the shareholders want to know if directors deserve an increment when the company has put on such a poor performance in the preceding financial year.
This year, in our summary of AGM visits, we were taken aback at a recent meeting when the Chair of the AGM seemed to conduct the entire AGM single-handedly. The Chair opened the meeting but did not ask the Company Secretary if the quorum had been met. Instead, he just continued reading from his prepared statement, announcing that there was quorum and then went on to the various resolutions.
The intensity of the Chair’s tone of displeasure rose to a peak once questions were raised on why the directors’ fees should be increased despite the company’s dismal performance. The Chair’s response to the question was extremely dismissive: “If you want talent, you have to pay for good directors”.
Without answering the question on why the fee schedule was to be increased, he just moved on with the agenda.
In another AGM, the Chair also went on the defensive when an ex-staff member in the audience (also a shareholder) questioned the poor performance of the company and highlighted the company’s poor dividend payout over the last couple of years.
The shareholder further questioned whether the Chair realised that the company had lost their long-standing trustee status as they had not followed their previous strategy of paying dividends, regardless if the dividend was small.
The chairman attempted to explain the reasons for not paying the dividends (which were due to unforeseen circumstances, the norm for the field of business they are in), but the shareholder retorted, “With the current financial year showing much improved results, why have there been no dividends paid?”
This back-and-forth exchange went on until the Chairman concluded this ‘exhausted topic’ by stating that the management would revert to paying a dividend once the earnings of the company stabilised. At this AGM, the topic of directors’ fees was raised as well, with the question being why directors’ fees should be increased when you can’t pay a dividend to shareholders.
Hostility aside, the shareholders had asked fair questions, which the management and board should be prepared for.
The board of directors in both instances described above were obviously not used to being asked sensitive questions such as their fees. In both cases, the rooms were filled with a palpable sense of self-righteous anger towards the audience, which can be summed up as: “How dare you, as a meagre pion of a shareholder with your few shares, ask us these sorts of questions?”
These cases show us that, on the one hand, there is a clear need to raise the intellectual level of questioning at AGMs. We certainly welcome moving the focus away from freebies and food.
But, it is not only the shareholders who are expected to raise their game – the people sitting on the stage should also be prepared to answer even the difficult questions, especially when it comes to their fees. It takes very little provocation for an AGM to descend into a chaotic, shouting match and you can be sure that every detail will be reported in the press the following day. Shareholders have the right to know how their monies are being spent.
From our roundup of the year’s AGMs, there seems to be a new trend of expecting shareholders to approve higher directors’ fees for the year ahead, instead of basing it on past performance. Some quarters quote that the rationale for this is to attract higher quality directors going forward, regardless of how the company performs. On the other hand, directors have to contribute their time and effort to serve the company without any remuneration for at least 15 months, if not more.
There is the argument that directors’ fees shouldn’t be benchmarked against the performance of the company due to the business cycle that the company is in. On top of that, there is the additional discussion about the fee differences for the independent and non-independent directors.
The jury is out on whether higher fees should be approved for the year ahead. Clear strategic plans and execution methods would be one way to provide clarity to the voting shareholders, instead of using the aggressive, I-have-the-bigger-share-of-the-vote ploy.
At the end of the day, you are a public-listed company, which means that you have taken other people’s money to form your capital. If you do not like the heightened levels of governance and detailed questioning that comes with being a public company, perhaps you shouldn’t be listed.
As the shareholders would readily tell you, “If you can’t take the heat, get out of the kitchen.”
© CORSTON-SMITH ASSET MANAGEMENT SDN BHD 2014