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Volume 8,
Number 3 • March 2011
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The Fix Is In
One worthy outcome from a trip to
Palookaville — a bevy of ideas on how to fix the annual meeting.
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First, a story.
Two years ago I decided to attend an annual meeting of shareholders. I had
not been to an annual meeting in 15-20 years, for reasons explained further
on.
The meeting was being held about a two-hour drive away, not particularly
convenient but manageable. I have some skin in the game with this outfit.
The company was 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 to allay concerns
about his leadership in time of duress.
Well, did I get snookered. The meeting was over in 10 minutes. Management
ran through the process at a sprint, giving no presentation nor taking
questions. The gavel came down on the proceeding before the small group in
attendance barely had a chance to settle into our seats.
I seethed all the way home at this colossal waste of a day out of the office
— and a colossal missed opportunity by management to sway opinion.
When I first became a business writer and editor (and investor), I
experienced a sense of anticipation, even excitement, in attending my first
annual meetings. I wanted to see top CEOs in action, see how they handled
themselves and told their company’s story smack dab in front of a roomful —
in many cases a ballroom full — of their shareholders.
I made it a point to see, and occasionally invest in, some of the great ones
at conducting this exercise in shareholder relations: the super-smooth Steve
Ross of Warner Communications (later Time Warner), the feisty Bill McGowan
of the early MCI Corp., the tough-as-nails Martin Davis of Gulf & Western .
. . and Reuben Mark of Colgate-Palmolive, who ran the closest thing to a
mutual CEO-shareholder “love fest” of an annual meeting that I ever sat in
on.
But it didn’t take long to get totally frustrated with this exercise in
corporate democracy. Too often the show-and-tell of the CEO presentations
was hijacked by the shout-and-yell of the gadflies’ disruptions. What really
made me mad were the meetings where I had to leave before the chief execs
even got around to talking about how things were looking for the company. I
didn’t count on how longwinded and diversionary the activists could be.
So for about two decades I eschewed attending any annual meetings. Why waste
my time? What was I to learn?
All of which was reaffirmed in that trip to Palookaville two years ago.
 But
my wayward excursion did plant the seed to devote some attention in
Directors & Boards to what was wrong
with the annual meeting as a corporate communications and shareholder
relations event. Then last year, as I mentioned in my editor’s note in the
February e-Briefing, my good colleague
Gary Lutin, chairman of The Shareholder Forum, invited me to participate
on a panel he formed to explore the pros and cons of
electronic participation in shareholder meetings. That was the trigger
to get me to nail down some serious editorial coverage on fixing the annual
meeting.
That special feature is the cover story in the First Quarter edition of
Directors & Boards, coming off press
just as this March e-Briefing lands in your email inbox. Over the course of
15 pages and some dozen expert commentators, we tee up a bevy of suggestions
for “dragging the corporate version of the 19th century towne meeting into
the reality of the 21st century global marketplace,” in the words of retired
Lockheed Martin Chairman Norman Augustine, one of our authors in this
analysis. See the Reader Spotlight below that contains a slice of this cover
story.
As I put the wraps on this editor’s note, I see Pat McGurn of ISS quoted in
the Feb. 24 Financial Times as saying, “This is the year that the focus
shifts back to annual meetings.” Obviously I agree, with this refinement:
This is the year that we need to get serious about rethinking the annual
meeting for a new era of shareholder engagement.
I know you are all fully paid-up subscribers and will all be reading this
cover story closely.
Am I right about that!? If for some miscalculation your subscription has
lapsed, I will share with you the issue’s leadoff article — an absolutely
superb “how to fix” critique by the preeminent annual meeting guru Carl
Hagberg. Email me at
jkristie@directorsandboards.com.
Jim Kristie is the editor and associate publisher of
Directors & Boards.
Editor's note: Each month, we ask a
Directors & Boards reader to comment on critical issues facing directors
today. This past month we asked for ideas on improving the effectiveness of
the annual meeting of shareholders. Here is a selection of responses. If
you'd like to participate in this section in the future, please email
Scott Chase.
How to Fix the Annual Meeting
Julie Garland McLellan, author of
the new book “Presenting to Boards,” and one of Australia’s leading
governance experts: “I would remove the ‘annual’ — once a year isn’t
engagement. Have an annual polling session with statutory reports but have
other interaction for meaningful exchange of ideas between those annual
sessions. David Gonski, a well-respected Australian chairman, once reflected
that an annual general meeting with shareholders was like a drunken
one-night stand with some total strangers! I tend to agree — not that I have
ever tried his analogy . . . it is just that I find the meetings so
unfulfilling.”
Eleanor Bloxham, CEO, The
Value Alliance: “Fixing the annual meeting begins with proper preparation in
advance. Step 1: All directors should read every word of all publicly
available documents in advance of the meeting with the intent of seeing the
company through the eyes of its most knowledgeable outside stakeholders.
Step 2: Directors should meet with shareholders and other stakeholders and
prepare and present a report of findings at the meeting. Step 3: The board
should prepare and present a report on how it has added value for all
shareholders and stakeholders and its plans to improve its performance in
future years.”
Michael McCauley, senior officer,
Investment Programs & Governance, Florida State Board of Administration:
“Almost all shareowner meetings are too formal, perfunctory, and sanitized
to be useful (apart from the real activities related to proxy voting).
Although most likely only a partial fix, I think giving shareowners, and
perhaps other non-owner stakeholders, the real ability to place items on the
agenda for discussion and reaction by directors (who should be required to
attend every AGM) would improve AGM effectiveness.”
C. Warren Neel, corporate director and executive director of the
Corporate Governance Center at the University of Tennessee: “Shareholder
governance pressure will obviously continue during the 2011 proxy season as
the Dodd-Frank Act interpretation by the SEC continues to become a reality.
Meanwhile, in response, some companies are beginning to consider changing
the annual meeting process to include both audit and compensation committee
chairs offering planned comments during the meeting. The focus would be to
provide a visual awareness of a chair and issues that have been considered
by a committee.”
Matt Orsagh, CFA, director, Capital Markets Policy, CFA Institute: “The
constraints are real: limited time, limited participation of shareholders,
and legal constraints on what can be said. Investors hoping to discern novel
insights at the annual meeting are ripe for disappointment. So spend time on
giving shareholders a window on how the board and management interact on an
issue of substance. Dispense with serial presentations in favor of a
less-scripted discussion of an unusually challenging risk or opportunity,
with questions from shareholders online or in person. Bring corporate
governance to life to validate shareowner confidence in the stewards of
their interests.”
Andrew
Shapiro, president, Lawndale Capital Management LLC: “The annual meeting
should be one of the company’s main investor relations events of the year.
It should be a showcase for the company’s products, its culture, its
strategic direction, and its corporate governance. In addition to a regular
investment or marketing road show, presentation should be made as to various
governance structures and activities the company’s board has gone through
during the year. Individual board committee chairs should get up and make
the presentation of what his/her committee worked on during the year and
their goals for the coming year. At a minimum, shareholder input should be
solicited and, optimally, dialogue be had. If the above were to be conducted
annually and investors could count on it, there would be a build-up of
in-person and webcast attendance that would be worthwhile in terms of
awareness and positive perception, which would find its way eventually in a
higher stock price.”
Glynn Holton, executive director, United
States Proxy Exchange, and James McRitchie,
publisher of CorpGov.net: “Advance notice, voting by proxy, shareowner
dispersion and other factors reduced the meaningfulness of annual shareowner
meetings. Yet, ‘face-to-face accountability,’ as noted by courts, can still
change corporate policy. Recent “virtual-only” meetings demonstrate they are
not ready for prime time, just as tablet computers introduced decades ago
needed years of development prior to iPad success. ‘Hybrid’ meetings provide
a testing ground for security issues, intuitive interfaces, independent
facilitators using published procedures, Q&A sessions around each proxy item
and other experiments that can lead to increased accountability. Technology
can facilitate real deliberation or devolution into meaningless ritual. The
choice is ours.”
Ron Schneider, senior
vice president, Phoenix Advisory Partners: “Regarding the potential role of
virtual shareholder meetings, it’s not whether the meeting is ‘virtual’ or
not. Is it ‘virtuous’ is the question. Elements of ‘virtuous’ meetings —
which technology can assist with — include: 1) Expanding the dialogue in
advance of the meeting, identifying and answering the real questions
investors have, and 2) Expanding the reach and participation of meetings via
technology, in addition to the traditional ‘in person – whites of their
eyeballs’ meeting. In this environment, trying to take away a long-standing
(if not consistently utilized) shareholder ‘right,’ to attend the annual
meeting in person, ask questions of senior management and the board, and
both hear their responses and observe their reactions, is swimming against
the tide. As for ‘cost,’ physical meetings need not be so expensive, if
conducted at company facilities, with a regularly-scheduled board meeting
proceeding the shareholder meeting (as many companies do). The greater
‘cost’ will be if the current crisis of confidence and trust is not
addressed. Open, accessible shareholder meetings — in which outside
directors, rather than sitting mute either on stage or in the front row,
actively participate and ‘come alive’ (beyond their two-dimensional proxy
statement blurbs) — are one vehicle that can be used to greater benefit
toward this end.
Cornish Hitchcock, principal,
Hitchcock Law Firm: “How about letting directors answer questions from
shareholders? As a rookie meeting attendee once asked me, ‘Why are the
directors sitting at the front of the room with their backs to the
shareholders? Shouldn’t they be facing the shareholders?’ Of course, the
question was utterly guileless, but I didn’t have an answer.”
Camilla Palmieri, University of
Lugano, Switzerland: “To improve the corporate governance function of the
annual meeting the Q&A session should be compulsory and disclosed. Moreover,
companies should make permanently available (on their own websites or
through the SEC or analogous authorities) a record or, even better, a
transcript of the annual meeting, in order for it to be easily accessible
not only to shareholders who could attend but also especially to
professionals in the field of communication, who can provide an independent
assessment and evaluation of the management responses to shareholders
demands in order to stop “corporate opacity” on important matters.”
Directors &
Boards e-Briefing is a monthly service of
Directors & Boards. All contents
copyright 2011, MLR Holdings LLC.
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