Commentary: Food for thought for shareholders at AGMs
Date: 17 April 2018

First published in Straits Times on 16 April 2018

They should acquire the requisite knowledge, as they have role in firms' overall governance

A public relations consultant, with many years of work experience in England and Australia working with listed companies, recently remarked that at all the annual general meetings (AGMs) he had attended in those countries before relocating to Singapore, "the shareholders who showed up were also more interested in discussing the quality of food served".

He did qualify his comments by adding that, at times, top management remuneration was questioned at AGMs, but by and large, shareholders of British and Australian firms had food on their minds when turning up at those once-a-year gatherings meant for them to grill their managers on important matters like how the company performed over the year just past, the adequacy of dividends proposed and paid (if any), board composition, remuneration and the firm's strategies and outlook.

It might be heartening to some readers to hear that some shareholders in other countries, with supposedly more developed markets than Singapore's, behave similarly to shareholders here because the caricature of the Singapore retail shareholder as "food obsessed" has been widely publicised. While the impression created is not off the mark, since the introduction of the Securities Investors Association (Singapore), or Sias, training sessions on understanding annual reports 10 years ago, feedback from listed companies has been that shareholders have been asking intelligent and relevant questions.

It has reached a stage now that several companies have responded to Sias' call to actually pre-pack food in takeaway containers in order to avoid a rush when the food is served and also to ensure an equal share for everyone; others in the meantime have done away with serving food altogether, ostensibly a move aimed at saving cost and/or ensuring those who attend are genuinely interested in discussing company affairs.

From the viewpoint of governance and accountability, it is disappointing but hardly surprising to hear that some shareholders elsewhere behave the same as those few here at AGMs. However, this could be because in some jurisdictions, shareholders know the system has embedded mechanisms and deterrents to ensure a minimum standard of good corporate conduct is observed - the United States, for example, allows class action suits, which provide a subtle but significant disciplining incentive.

Similarly, Australia applies a "two strikes" rule for directors' pay that could result in the entire board being put up for re-election.

The AGM provides an avenue for shareholders to meet managements face-to-face and find out more about their investments. Whether or not food is served, shareholders should make full use of this opportunity and arm themselves with the requisite knowledge before attending. Only in this way can shareholders achieve the basic objective of holding the board accountable.

The "first strike" occurs when a company's remuneration report - which outlines each director's individual salary and bonus - receives a "no" vote of 25 per cent or more by shareholders at the firm's AGM. The "second strike" occurs when a subsequent remuneration report also receives a "no" vote of 25 per cent or more.

When a "second strike" occurs, the shareholders will vote at the same AGM to determine whether all the directors will need to stand for re-election. If this resolution passes with 50 per cent or more of eligible votes cast, then a "spill meeting" would take place within 90 days. Should Singapore introduce a similar arrangement? Perhaps we should - if it was, it would surely provide food of a different kind at AGMs, namely, food for thought.

In the meantime, what can be done to encourage retail shareholders to be concerned about the agenda? The starting position of any discussion about changing this image has to be that shareholders, as equal stakeholders in the local market, have an important role to play in overall governance and should therefore take more interest in the firms in which they own shares. They should be allowed to engage the board when they raise pertinent issues. Bearing this in mind, one valuable source for those interested in contributing to informative AGMs is to focus on the initiatives formulated by Sias aimed at equipping shareholders with the necessary knowledge to turn up at these meetings and raise important issues.

The first is Sias' "Three Questions" for AGMs, which look at corporate governance, business strategies and the financial statements. Sias researchers send questions on these three areas to several firms ahead of their AGMs. These can be found on Sias' website, together with the answers.

A few companies reply before their meetings but most are silent - undoubtedly disappointing but if shareholders familiarise themselves with these questions and then pose them at AGMs, managements would be forced to provide answers and those shareholders present would be better off, having learnt more about their companies' prospects.

Second, Sias also encourages shareholders to ask companies about their internal audit (IA) function at AGMs. Together with the Asia Centre of Excellence for Internal Audit, there are four questions possible, the first being whether there is an internal audit department as recommended by the Singapore Code of Corporate Governance, principle 13.

The others are whether the IA is independent of the activities it audits, whether it has sufficient resources (including what is the size of its budget) and the qualifications of the IA staff.

Last but not least, Sias, together with the Accounting and Corporate Regulatory Authority and the Institute of Singapore Chartered Accountants, provides a guide to prepare retail investors for AGMs via greater understanding of the enhanced auditors' report.

Using this guide, shareholders can gain greater understanding of what different audit opinions mean and what are key audit matters, the latter being significant risk areas that might have required greater audit attention in the course of the annual audit.

The AGM must not be used by shareholders, though not many, to make unrealistic demands like the provision of transport and, by the same token, companies must not hold AGMs at inaccessible venues or at inconvenient times.

The AGM provides an avenue for shareholders to meet managements face-to-face and find out more about their investments. Whether or not food is served, shareholders should make full use of this opportunity and arm themselves with the requisite knowledge before attending. Only in this way can shareholders achieve the basic objective of holding the board accountable.



David Gerald
Founder, President & CEO
Securities Investors Association (Singapore)

 
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