Dos And Don’ts At The Annual Shareholders’ Meeting

Foreword from ShareInvestor

This article “Dos And Don’ts At The Annual Shareholders’ Meeting” by Marissa Lee was first published in The Sunday Times on 22 Apr 2018 and is reproduced in this blog in its entirety.

Investors are in the thick of AGM season, that time of the year when listed companies host their annual general meetings and shareholders get a chance to quiz bosses on their vision and strategy. How valuable an AGM is very much depends on what questions shareholders pose to the board, so The Sunday Times asked some corporate veterans to share their tips on how to engage directors and management in more meaningful discussions.

Tongue-Tied Boards

Sometimes the most frustrating answer a shareholder can get is no answer at all.

The refrain: “We are not at liberty to provide any more information other than what has been announced” – and other variations on this theme can get quite vexing, especially when used in response to seemingly innocuous queries.

The board is not entirely to blame. If they were to give price-sensitive information to some and not all shareholders while the market is trading, directors would run foul of fair disclosure rules.

To help the board get round this problem, corporate lawyer Adrian Chan suggests that shareholders e-mail their questions to the company ahead of the AGM.

Mr Chan, who is also the lead independent director of AEM, Global Investments and Yoma Strategic, says: “Most boards actually have a pre-AGM board meeting to prepare for the AGM.

“If shareholders ask us tough questions and we are given time to prepare, we have time to say this is a good question, maybe our disclosures have not been good enough.”

Given adequate time, the company could even prepare a presentation to address the queries and publish its presentation slides on the Singapore Exchange so all shareholders benefit.

Mr Chan adds: “If you spring a tough question on us at the AGM, we will give you a superficial answer. We can’t go in-depth because we’re not prepared. But if shareholders give us time to prepare, that’s different.”

Poor Performance

The worst interchanges dissolve quickly into acrimony when unhappy shareholders clash with the board over the firm’s mistakes.

Yet poor performance is not something to be shoved under the carpet, so how can shareholders confront the board about mismanagement without being offensive?

“Shareholders should never be worried about offending anyone if they ask questions in good faith and politely,” says private equity entrepreneur Ng Shin Ein, who has served on various boards.

“One of the more interesting questions that a shareholder once asked was how the company deals with underperforming assets; that’s an important question.”

But shareholders must also understand that companies go through different stages in their life cycle. Then there are times when the general environment is bad, and times when funding is difficult.

Ms Ng adds: “Acquisitions may take time to deliver gains, or maybe they’re just bad acquisitions. You have to gauge for yourself, is this a prolonged state of affairs? Or is management doing its best to steer the ship towards better times?”

Venture capitalist Eugene Wong advises shareholders not to give the board a reason to be defensive or evasive.

“Actually, directors can be quite apprehensive when they face shareholders. There’s always this wrong perception that directors are being put through a test, to be cross-examined by shareholders at the AGM,” says Mr Wong, who is a non-executive director of Japan Foods, Neo Group, Singapore Kitchen Equipment and Jason Marine.

“But for shareholders who put directors at ease … the board will be willing to engage them.”

Quality management should be able to recover quickly from setbacks, and explain clearly what steps are being taken to reverse the poor performance.

But what if you’re still not convinced by management’s plan?

Ms Ng says: “There’s always room for productive disagreement, but you mustn’t keep insisting on your point of view. That’s just arguing with management and the AGM is the wrong forum for that.

“Be thoughtful about other shareholders’ time. If you feel the management and board is muddled or taking the wrong direction, then the logical conclusion is that you should divest.”

Dividends

Directors told The Sunday Times small-time investors have become more sophisticated over the years.

Instead of looking only at this year’s dividend and clamouring for more, shareholders are thinking about whether a firm’s dividends can be sustained. In the first place, it is not true that shareholders have the power to requisition the board to pay them higher dividends.

Mr Chan explains: “It is the board’s fiduciary duty to decide how it wants to manage the cash and deploy funds.”

However, Singapore’s Corporate Governance Code does encourage companies to have a dividend policy, which they should justify and communicate to shareholders.

If shareholders want to challenge the board, Mr Chan advises them to use concrete examples to do so robustly.

“Don’t just say, ‘Can we have more dividends?’ Such a plaintive cry won’t be heard in the wilderness. You have to do it in a more organised, structured way,” Mr Chan says. “Use public information to say, ‘Your peers in this industry are giving more dividends, you should too.'”

The global trend now is that many companies are raising their payouts, and more companies are reviewing their dividend policies, he adds. In the last earnings season, these included DBS Group and United Overseas Bank.

Mr Chan says: “Shareholders are now armed with more statistics to show that unless you have good reason to hold your cash, you should return it to shareholders.”

However, Mr Tan Chin Hwee, an accountant who sits on global boards, notes: “It make senses for stable blue-chip companies like banks to focus on dividend payout, but depending on what a company is trying to achieve, higher dividends are not always ideal.”

The high-level, back-of-the-envelope test is whether a company can invest its capital to generate future cash flows at rates of return that exceed its dividend yield.

A prime example would be Hong Kong-listed social media giant Tencent, Mr Tan says. “You don’t want them to return the dividend, you want them to invest it in future projects to grow your money.”

Stay On Point

Directors The Sunday Times spoke to unanimously agreed that the key purpose of AGMs is to build trust between shareholders, the board and senior management.

Ms Rachel Eng, lead independent director of StarHub and an independent director of Olam International, says: “When you invest in a company, you want to trust the people managing your money. A physical meeting is important to see whether the management is working hard for you.”

Ms Elizabeth Kong, an independent director of Singapore Post, says shareholders will get a better pulse on the firm if they make good use of the direct access an AGM gives them to the board and management.

Ms Kong adds: “Those who have tracked the development of the company closely, by reading through the annual report and all announcements released by the company diligently, tend to ask more insightful questions not already addressed in prior written disclosures.”

To get some ideas on how to use an annual report to formulate questions, investors can visit the Securities Investors’ Association of Singapore (Sias) website, where the team publishes lists of carefully researched questions for selected companies. Investors can use those questions as a springboard for their own research.

At AGMs, shareholders should also restrict their questions to those that are business-related, directors say. AGMs are not the right forum to pursue complaints that should be directed to the customer service department.

Ms Eng says: “To be considerate to other shareholders, ask those questions that have a broad and wide interest.”

The best questions are those that help stir thinking among board members and even other shareholders, adds Mr Chan.

“For example, if a shareholder asks about the company’s digitalisation strategy, and brings in what he has seen in other companies locally or overseas, that’s refreshing.”

All things considered, the quality of questions and level of shareholder participation here has improved by “leaps and bounds” over the past 20 years, says Ms Eng.

Mr Chan quips: “It’s starting to be a bit of a myth that Singapore’s retail shareholders are only concerned about administrative stuff and self-serving about food.”

Mr Tan, who is himself an investor, agrees completely: “I go to AGMs to make money, not to eat food.”