Australia: Results Of 2006 AGM Survey

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Substantially fewer companies received questions about audit-related matters at the meeting itself.

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.

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.

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.

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).

Most companies continued to display proxy votes after discussion and before the voting took place.

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.