25 July 2006
The AGM is the principal annual forum at which a company can communicate with its institutional and private shareholders. It may not be perfect dialogue but it is an occasion when the company has the opportunity to present the full board to its shareholders, present the chairman's report and answer questions from shareholders on a range of matters including financial performance and corporate governance.
Some commentators have posed the question 'Is the AGM losing its relevance?'
Whilst this view is expressed in some quarters, recent developments indicate that with the increased emphasis on corporate governance, the AGM has gained importance. For example, the ASX Corporate Governance Council Principle 6 covers specifically the role of the AGM as a vehicle for increasing shareholder participation. However, the existing arrangements and formats of AGMs should be regularly reviewed to adapt to the changing environment to ensure that it is a cost effective means of communicating with shareholders and satisfying legal requirements.
The G100 does not believe the AGM is in need of 'rescuing' as some commentators might suggest. Rather, it needs to be seen as an important element, but only one element, in a suite of communication practices used by companies to keep the market informed. There are a number of ways in which AGMs could be made to be a more efficient and effective vehicle in achieving participation by, and communication with, shareholders and adapting to the changing corporate governance environment. For example, this could be achieved through:
The AGM deals with regulatory and disclosure requirements on one hand and with general information and future outlook on the other. It is not appropriate for one interest group, or an individual shareholder, to use the AGM as a forum to promote a particular issue/cause and in so doing effectively disenfranchise other shareholders. A means of minimising the risks of such groups monopolising the floor and to ensure equality of access by all shareholders would be to develop practices and procedures such as guidelines. This could be achieved by accepting questions from shareholders before the AGM which can be reviewed by a panel of shareholders and responses distributed at the meeting and posted on the website.
The G100 view is that the decreasing attendance at some AGMs must be balanced with the fact that shareholders have many other avenues for obtaining information concerning a company. A regime of continuous disclosure in conjunction with half yearly and, in some cases, quarterly reporting and an active business media contribute to an informed market. In addition, the increasing use of electronic communication enables a company's shareholders and its broader stakeholder base to become better informed by directly accessing information on the company's website and releases to the market.
This is also being reinforced by the growth of shareholder bodies such as Australian Shareholders' Association and the more activist stance of institutional investors and superannuation funds including industry funds and the introduction of non-binding votes on director and executive remuneration. The involvement of these bodies serves as a stimulus to increase attendance and participation at AGMs.
Increasing regulatory complexity, corporate governance requirements and new IFRS regime, also focus attention on the ongoing role and effectiveness of the annual report for communicating with shareholders and other stakeholders. For example, annual reports tend to focus on corporate governance and statutory requirements including the financial reports and are couched in technical and legalistic language. In these circumstances it may be appropriate to develop different formats and types of reporting such as shareholder friendly reports for communicating information to different classes of shareholders.
In conclusion, the G100 believes that:
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