By Stephen Mayne
December 26, 2007
This was first published by Crikey in 2000, but has resonance today as we strive to improve public company AGMs.
Naturally, all shareholders want good performance which produces rising profits, rising dividends and a rising share price. This is often not something that just happens. When investors big and small keep pressure on companies and the media does their job in criticising where necessary, a company is more likely to perform over time. The role of a shareholder is therefore to warmly commend when the performance is good but be far less tolerant of sub-standard performance.
ROLE OF A CHAIRMAN
Publishing and Broadcasting Ltd chairman James Packer distinguished himself in 1998 by not even bothering to give a chairman's address. This is the first requirement of any self-respecting chairman. However, the chairman should also give the chief executive ample opportunity to address shareholders, unless the pompous former Colonial chairman David Adam who didn't let the shareholders hear from their hero Peter Smedley at Colonial's last meeting earlier this year. One or both of them should give a detailed slide show about the company's affairs, including an update on the latest trading figures and predictions about the year ahead. The chairman should actively encourage questions from the floor. News Corp's Rupert Murdoch is one of the biggest offenders on this front and has therefore had only one question in the seven years to 1998. And a chairman should seek to spread the questions around amongst shareholders but also not rule out a single shareholder asking up to 10 questions provided they are sensible, there is time and no-one else is waiting. A chairman should also try to avoid the old ''we'll get you that figure later'' answer where possible. I'm still waiting for Foster's Brewing's former chairman John Ralph to tell me how much punters lose on their poker machines each day, as he promised at the 1998 AGM.
ROLE OF OTHER DIRECTORS
Food group Goodman Fielder and Boral set excellent examples in 1998 when they required directors who were offering themselves for re-election to address the meeting on what they could bring to the company. This is a precedent that all companies should follow. If a member of the old boys network wants another three year sinecure worth $200,000, he should at least have to sing for his supper for a couple of minutes. Similarly, a chairman should also allow other directors to speak to the meeting where necessary. For instance, if a director is representing a specific shareholder and a matter relating to this shareholding is raised, then that director should be encouraged to speak at the meeting. This occurred at the 1998 Mirvac AGM when the Lend Lease director was asked if it was committed to its 10 per cent shareholding. AGL chairman John Phillips should have asked Sir Ron Brierley to defend his appalling attendance record at this year's meeting.
Australian companies have come a long way on disclosure in recent years, largely due to legislative prodding rather than voluntary offerings. Remember the days when Coles Myer directors Lindsay Fox and Solomon Lew did $170 million worth of private business with the retailing giant each year and this was never disclosed. The late Laurence Gruzman, QC, ended this little ruse after being paid by a prominent Sydney business identity to agitate for change at the Coles Myer AGM. This was more about settling an old score than acting on behalf of all shareholders, but the outcome was very positive all the same. Companies like Leighton Holdings should also disclose all political donations in their annual report. And rather than saying it is to support democracy, companies should adopt the Macquarie Bank strategy of frankness and admit they are largely about opening political doors, winning regulatory favours and boosting profits. It is good that companies are now forced to give a breakdown of payments to directors and senior management. And companies such as mining giant WMC have also dramatically improved disclosure on their currency and hedging exposures. There should be more of it. In essence, companies cannot tell their shareholders too much. Shareholders should demand that things such as executive remuneration, political donations, currency exposures and related party transactions are disclosed as a matter of course. When companies are dealing in third world or developing countries where corruption is much more widespread, they should give even more detail about what they are up to. For instance, countries such as Macquarie Bank, BHP, Coca Cola Amatil, Commonwealth Bank, Telstra, Village Roadshow and Boral which have operations in Indonesia, should reveal how they dealt with the Suharto regime and whether they donated to any political parties or were in partnership with Suharto family members.
CATERING AND HANDOUTS
Companies have one public occasion each year and should do their level best to attract as many shareholders as possible. To this end, they should cater with sandwiches and hot food, as well as a variety of drinks. Leighton Holdings provided the best catering in 1998 with a full bar and lots of hot food. The Commonwealth Bank deliberately doesn't do much to keep shareholders away and News Corp puts on a good spread but restricts this to shareholders so you don't have to mix with journalists. Companies should also take the opportunity to better explain their operations with displays and customer service people on hand to help if need be. A Goodman Fielder-style showbag for shareholders is another thing that most companies should adopt as standard practice.
The saddest thing about many company AGMs is that four or five journalists who turn up often end up getting better access to the chairman and chief executive than the rest of the shareholders combined. Invariably, the journalists also ask better questions than the shareholders. Take the PBL meeting in 1998 where James Packer said as little as possible to shareholders during the meeting but it was disclosed to journalists afterwards that Channel Nine had lost $10 million on the Commonwealth Games. The solution to this problem is two fold. Firstly, shareholders should ask more incisive questions during the meeting and then should be encouraged to listen in when the media have their turn after the meeting. This is what the model chairman would say at the end of this model meeting: ''Well that concludes the formal part of the meeting and I invite shareholders to join the board for some refreshments out the back. However, the chief executive and I will remain on stage and answer questions from the media for a few minutes. We will continue to use the microphones and shareholders are welcome to listen in but not participate.'' It will be interesting to see which is the first company to take up this suggestion. I've been watching the media have a better and more informed exchange with the CEO after AGMs for 10 years now. When shareholders read the papers the next day they must wonder whether they were at the same meeting. The quotes usually finish with: ''Chairman Joe Bloggs told journalists after the annual meeting''.
ROLE OF THE AUDITOR
The company auditor is required to answer questions at AGMs these days so don't be afraid to use him. Afterall, they are the only independent party you can turn to for advice on something contentious. It is also important to watch out for companies paying auditors large sums for "other services". These bonus fees can capture an auditor and them him or her less reluctant to blow the whistle when something dodgy happens. As a rule of thumb, it is worth probing any auditor at an AGM who is receiving more for "other services" than for normal auditing.
AGM TIMES AND VENUES
Japanese listed companies all have their meetings on the same day to spread the resources of the notorious Yakuza gangs thinly. The Yakuza likes to stand over Japanese companies and extract protection money. Let's hope the amazing coincidence in which Melbourne-based mining companies Newcrest and Pasminco have had clashing AGMs three years in a row is exactly that - a coincidence. And for media junkies like myself it is most annoying that the News Corp AGM in Adelaide on October 18 clashed with the PMP meeting in Melbourne. With Ken Cowley chairming PMP and sitting on the News Corp board you'd think he could have avoided that. Similarly, what a coincidence that PBL and Fairafx both have their meetings starting at 11am on November 3. Surely Fairfax chairman Brian Powers hasn't been conspiring with his Packer mates again. If a company wants to get minimal media exposure the best day to hold the AGM is at 4pm on a Friday in some far-flung suburb. The Saturday deadlines are much earlier than other days and the papers much tighter and full of features rather than hard news. Many journalists like to be in the pub by 6pm on Friday. Similarly, business journalists like to sleep in so company's such as One.Tel and ecorp which go for the pre-10am start often manage to minimise their exposure to pesky journalists and shareholders. The ideal time for an AGM start is 11am as it allows everyone to make their way into town after the rush hour and usually the meeting is finished in time for lunch. Lend Lease is having another 7pm meeting at Fox Studios this year which will probably get no media but a stack of shareholders. Maybe more companies should look at doing this. Big companies should move their meetings between Sydney and Melbourne but the likes of WMC and Qantas which take them to far flung centres such as Kalgoorlie and Adelaide only serve to reduce the number of shareholders attending. Investors should remember that travel costs incurred getting to and from AGMs are tax deductible. Therefore, if you want that Gold Coast holiday, buy some Village Roadshow shares and head up to their AGM at Movie World in late November.
HOW A CHAIRMAN DODGES QUESTIONS
There are many tactics I've seen chairmen use over the years to obfuscate and dodge questions. One of the best dodge tactics is that old chest nut of a legal dispute being ''subjudice''. Yes, Mr chairman, but if there is no jury, as there ain't in your case, you are much more able to comment publicly. When a company's share price is on the skids, just watch for the chairman who says the board does not set the share price, that is up to the market. The share price is the ultimate measurement of a board's performance, so any chairman worth his salt should be prepared to comment on it at length. There are a few other rules of thumb too:
* If there is a perception of share overhang in the market, the chairman should say so.
* If the institutions have fallen out of love with the company, the chairman should say so.
* If there is a perception that the board and management have problems, the chairman should say so.
* If an entire industry is on the nose (ie private hospital operators and insurers at the moment), the chairman should say so.
The message here is: don't ever let a chairman wriggle out of explaining a tumbling share price. And also watch out for the old line that we are talking about this year's accounts only. A chairman should openly talk about the past 10 years if need be. The other big chairman cop out is claiming that ASIC regulations limit what a company can say. This would have a touch more credibility if ASIC weren't such paper tigers.
BOARD AND MANAGEMENT FEES AND SALARIES
Executive pay in Australia gets a pretty big run in the media and is a pet topic of some shareholders. However, when compared with American companies, our top managers are not paid that well. A decent chairman should pick up around $100,000 a year and it is hard to begrudge the chief executive of a top 50 company earning more than $1 million these days. However, it is important that a large part of a CEO's package remains ''at risk'' and dependent on performance. The Howard government should be commended for accepting the Labor recommendations that executive remuneration be broken down into specific categories. This disclosure improvement has shown that Macquarie Bank tends to have the largest reliance on bonuses, which reflects the industry standard in investment banking. However, critics should also closely assess the shares and options that senior management and directors hold. The practice whereby directors can accept their directors fees in shares is also welcome and should become a lot more widespread. And when a director has absolutely no shares in a company, shareholders should ask why? One other useful rule of thumb is to assess what percentage of net profit is being paid to the CEO and the board. Westfield Holdings executive chairman Frank Lowy takes about 6 per cent of the net profit as salary last year, which in my book is way too much, especially when he is already worth about $2 billion. Similarly, non-executive directors should not be on bonuses or options scheme because they need to be at arms length from the process that negotiates these deals with management. Rupert Murdoch constantly thumbs his nose at this one. Similarly, NEDs should take all their compensation up front. If there is a golden retirement handcuff awaiting him or her then they are less likely to resign on a matter of principle when something is up.
One of the reasons Australian companies have performed so badly over the years is the lack of shareholder pressure. Dud directors survived on boards for years, some CEOs clung on too long, emotion and sentimentality was too often a factor in big decisions and corporate egos sometimes just got out of hand. So shareholders should get out there, attend as many AGMs as you can, ask questions and demand performance. All of us will be much better for it over time.
If any shareholders, directors, journalists or other interested parties have any criticisms or additions to make about this, please let me know by email on email@example.com
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