Home / Opinion / How to make annual general meetings really count

Another annual general meetings (AGM) season is coming to an end. Yet AGMs in India continue to remain completely off the mark compared with the impact they once had. Stories of shareholders rallying to specially convened AGMs at stadiums—in the thousands—to listen to Dhirubhai Ambani, or investors following Nani Palkhivala’s wisdom on corporate decisions seem like myths now. From sports to technology, luminaries play a critical role in connecting and democratizing a concept or a calling. Markets and AGMs perhaps are no different. AGMs here have been unable to sufficiently influence both the market and public opinion.

Given the majority 50%-plus stake that most promoters have in their companies in India, AGMs have been about forcefully moving ahead with the majority shareholder’s view and completing a critical legal requirement imposed on the company. Section 96 of the (new) Companies Act, 2013, makes it compulsory for listed companies to hold an AGM every year. Approving the company’s annual financial disclosures, approving dividends, appointing or reappointing company directors or auditors, and approving director remuneration, are among the important activities that obligate companies to seek majority shareholder approval every year. But beyond legal requirements, these meetings provide an underappreciated opportunity for shareholders to understand and question the company management on its performance.

AGMs provide an easy window for shareholders to influence management. The power that AGMs wield, though limited, is significant and decisive.

Successful AGMs don’t have to be just massive crowd pullers. Trust and confidence in the shareholders towards management action in the forthcoming year is the most critical outcome from an AGM. Shareholders and companies, together, can make AGMs productive.

After a company sends a notice for an AGM, it is important that shareholders, based on the documents sent to them and other available information, take the time to understand the company’s fundamentals and performance.

Shareholders should then make a list of questions for the company management and send this list to the company in advance so that the questions are addressed by them in the AGM. To win shareholders’ trust, the management, in turn, should appreciate shareholder expectations on financial performance as well as corporate behaviour.

Both companies and shareholders should use the AGM forum to establish constructive dialogue. Shareholder activism on frivolous questions such the type of snacks being served at an AGM, for example, is completely uncalled for.

With globalization, video conferencing and the Internet, it’s not surprising that few people attend AGMs. Compulsory e-voting platforms proposed in the new law (effective fully from December 2014), however, may considerably increase shareholder input and feedback.

The e-voting mechanism is bound to attract shareholder participation at all levels. Investors would do a disservice to themselves and the markets if they just sell their holdings and remain indifferent towards company resolutions. In that regard, recent examples of institutional shareholder activism—one regarding voting down an additional director’s remuneration at a large blue chip company and another about questioning a large company’s management on relocating operations—is encouraging for the higher standards they may have set for better accountability.

Investors must recognize that beyond the regulatory aspect, companies in general do not have any overwhelming commercial incentive in conducting an AGM. But from a management connect perspective, among other stakeholders, the biggest beneficiary from the AGM exercise is the minority shareholder. Management access, discussion on issues beyond what is being proposed on an AGM agenda are challenges not just for the small shareholder but also for other investor categories. Shareholders with 10% of a company’s capital could send a requisition to the company for insertion of an agenda item.

As the new Companies Act gets enforced, companies may be forced to seek votes from minority shareholders for approval on implementing some of the management actions. For instance, a big company is likely to desist from awarding a large contract to a related party purely on the basis of the relationship between the two. For some related-party transactions beyond a threshold, the company will now need to seek approval of a majority of the minority vote.

India is an emerging economy but the principles and best practices on corporate governance mentioned in the Companies Act are among the world’s best. The regulatory framework for increased disclosures, enhanced shareholder voting rights and easier management interaction, may just have set the stage for considerably improving the prospects of all stakeholders. It is important that shareholders and companies together use the AGM forums to build a strong capital market environment.

Shreenivas Kunte, member of advocacy committee, Indian Association of Investment Professionals—member society of CFA Institute.

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