Bringing down the barriers to shareholders subjecting company management to frank and public questioning at the annual general meeting will take more than a beefed up auditor’s report, says Jane Fuller, former financial editor of the Financial Times and co-director of the Centre for the Study of Financial Innovation think-tank
‘The first resolution of this AGM will be related to the receipt and consideration of the company’s accounts and the reports of the directors and the auditors.’
So there it is, the number one item at the annual general meeting of a typical quoted company. Cue a well-informed debate between investors who have studied all x hundred pages of the annual report, the directors who produced it and the auditors who scrutinised their work. Dream on.
In the real world the only contentious issue is likely to be directors’ pay. One audit partner told me that in many years of attending annual meetings he was asked only one question: ‘Is the audit partner here?’ The answer was ‘yes’ and that was it. A key point of initiatives to beef up the auditor’s report is that it will provide ‘hooks’ for a dialogue between the company and its shareholders, and even (whisper it softly) between the auditor and the shareholders.
So will it lead to a shareholder spring of protests at AGMs along the lines of those seen over pay? Maybe, eventually, but there are several barriers. Sadly, it is a romantic notion that the AGM is a forum for frank public debate on fundamental issues between a company’s owners and their managing agents. As the Kay Review of UK equity markets pointed out, ownership is very fragmented. More than 40% of the market is attributed to non-UK holders; UK pension funds and insurers hold only about 20%, individuals 11%.
But even for those based in the UK, the diversity of their portfolios and the concentration of AGMs into a March-June season make it physically impossible for most shareholders to attend; hence, the reliance on proxy voting agencies. An awkward question may be asked by an individual, but the risk is high that this tiny stakeholder will be fobbed off. It does help, however, if something specific in the audit committee’s report – and, in future, the auditor’s commentary – can be pointed to.
Another issue is the passage time between the preliminary announcement, the publication of annual report and the AGM. At present the most incisive bout of public questioning comes via the company’s webcast presentations to analysts on the day of the announcement. But two problems remain: the prelims do not have all the notes; and even when the annual report is published at the same time (hats off to HSBC), no one has time to study the information properly before the meeting.
The best opportunities to question management are afforded to big institutional investors, the ones the management wants to see, in one-to-one meetings in the days after the preliminary announcement. They should not get any new price-sensitive information, but such access is highly prized. The FT reported that some asset managers were paying brokers $20,000 an hour to meet CEOs. Better reporting by audit committees and auditors cannot improve the dialogue by itself. More opportunities need to be provided to pose the prompted questions – preferably in public via webcasts, and definitely not in paid-for privacy.
This process should start after publication of the annual report and run for some weeks, taking in the AGM. Questions could be emailed in advance to the audit committee chairman and the audit partner – some could be dealt with via a dynamic frequently asked questions page. The meeting itself should be asked to approve – not just receive – the financial and audit reports. Anything that aids a considered approach to a company’s accounts and prompts auditor independence should benefit the company, its long-term shareholders and market efficiency. That would be green shoots indeed.