'Tis the season to face investors

When the going is good, everyone should be happy, with the chairman and board basking in the warm glow of shareholder appreciation knowing that they have added value.

But when trouble looms, as it has done recently for many companies, the annual meeting can be a starkly different experience. In both Australia and New Zealand, the annual meeting seasons have been dominated by concerns about rising directors’ fees and executive remuneration in the face of falling share prices and company earnings. For the first time in years, directors have had to break bad news to investors and face up to tough questions in a negatively charged atmosphere.

Board-shareholder relations are important and directors need to engage owners, thereby forming the functional bridge between shareholders and managers. In reality, directors have little choice, as owners now want to exert greater control over their investments and are demanding a richer dialogue. In Britain, some public companies are exercising pro-active governance, with their chair people meeting periodically one-on-one with investors to build relationships and trust. Investors regard this as positive.

Institutional investors have articulated a clear agenda for board engagement. At last year’s conference of the International Corporate Governance Network, institutional investors representing US$15 trillion (NZ$21.26t) in global assets made it clear that they now expect boards to open up lines of communication and engage directly. Fifty-four per cent wanted to engage with all directors compared with 13 per cent with just the chief executive and chairman. A total of 81 per cent indicated that direct dialogue enhanced returns.

The annual meeting is one of the few opportunities minority shareholders have to exercise their legal right to question, discuss, or comment on the management of the company.

James Strong, chairman of Woolworths Australia which owns New Zealand supermarkets Woolworths, Foodtown and Countdown, says many directors don’t like annual meetings, because they can get pretty rough. Some questions might be deemed trivial, such as complaints about shopping trolleys not wheeling straight, but shareholders as owners should be given the opportunity to seek answers regardless. Strong feels boards should view the annual meeting as a barometer for shareholder issues surrounding the company and industry. Directors should harden up, he said, because taking on positions of importance means that you have to be prepared to front up and be prepared to give full answers to the tough questions. And there are positives. The same meetings are also an opportunity for the board and senior management to explain the organisation's strategy.