Tis the season for shareholder unrest. The annual AGM season always throws up curveballs for companies that think they are in control of the corporate narrative, only for external forces and factors to take over and turn the Annual General Meeting into Another Grumpy Meeting.
Could this be you?
Your company’s AGM notice of meeting went out almost a month ago and none of the resolutions appeared to raise any particular concerns. But now, on the eve of the proxy voting deadline, a flood of “against” votes has come in.
What you thought was going to be a routine run-through of the oft-repeated corporate narrative in front of a handful of shareholders could actually become an unwieldy affair hijacked by shareholders raising issues you didn’t want to address, or even worse, didn’t realise you had.
Up until a few years ago the conventional wisdom was that shareholders – and we usually meant the big, institutional end of town – voted with their feet. If they didn’t like the company’s direction, they simply sold their holdings.
Then in 2011 the ASX introduced the two-strikes rule, which meant that if a company’s remuneration report – an annual AGM resolution – attracted a vote against of 25 per cent or more in two successive years, then shareholders would vote on spilling the company’s entire board. Strikes have happened aplenty, though a board is yet to be voted off as a result of the two-strikes rule.
It certainly sharpened investor and company executives’ attention on executive remuneration practices.
Just as pertinently, the remuneration resolution became a “protest resolution” of choice for disgruntled shareholders. If was often used by shareholders to protest against the company’s performance, even if remuneration levels were acceptable.
Fast-forward to today’s world and shareholders by and large are far more discerning with their protests.
During this AGM season, which kicked off in the past couple of weeks but will really get going this month, keep a look-out for the following resolutions to cop a beating:
Adoption of the Remuneration Report – are salaries out of whack with the company’s market cap? Are the STI hurdles too generous? Or the LTIPs excessive?
(Re)election of an individual director – it is becoming increasingly common to see large protest votes – think 15 to 25 per cent – against the (re)election of non-executive directors. Quite often it has nothing to do with your company but is a reflection of your director’s other gigs. And some of those may have caused disappointment in shareholder land.
Adoption of senior executive options or incentive share plans – you might think the issue of these performance-based pieces of equity is fair and square. Not everyone will agree. Put yourself in the shoes of the smaller shareholders, who during the year may have missed out on participating in a discounted share placement. Here is an opportunity to vent.
Approval of 10 per cent placement capacity – this is a significant issue for companies at the smaller end of the ASX market capitalisation spectrum. The market for junior stocks has been dreadful in the past few years, severely curtailing equity raising opportunities. Many juniors are existing on a hand-to-mouth basis of drip-feed mini-placements. Renewing the annual placement capacity is therefore vital, though beware the disgruntled shareholder who has seen their stake diluted in size – and value.
Increase in non-executive directors’ remuneration – I know, non-executive directors haven’t had a pay rise since 2015. But in that time the company’s share price has gone backwards, cash is tight and your flagship project is no closer to delivering you value. Maybe the non-execs can hang on for another year.
In the modern history of AGMs, only a minority of ASX-listed companies have had any of the above five resolutions voted down. But increasingly we are witnessing shareholders taking action at the AGM by venting their frustration through voting against particular resolutions.
As a non-executive director, nothing should be more embarrassing than having more than 20 per cent of the AGM vote against your (re)election. It is something we are witnessing more and more.
The same is true for senior executive equity packages.
In short, the remuneration report resolution is no longer the only avenue for shareholders to protest.
And it is amazing how in this day and age of media chasing the “unusual” story, the best way to get headline treatment is to have a large protest vote at your AGM – because it demonstrates you are out of touch with your constituents.
For all the rhetoric about understanding your shareholder base, ask yourself: do you really know how they feel? Is your company’s share price performance well understood and justified by external market factors? And does your corporate narrative still resonate?
If you see adverse proxy votes come in, alarm bells should start ringing. Irrespective of the turnout on the floor on the day of AGM, any protest vote should be heeded and addressed post-meeting.
Reassess your corporate narrative. Reassess the way you engage with your shareholder base, both large and small. And reposition your communications strategy from one of reactive to the proverbial horse bolting to an engaged and pro-active regime that keeps the stable door on shareholder dissent firmly closed.