Shareholder spring? Looking back at the 2012 AGM season
While the annual general meeting (AGM) season in Hong Kong coincides with springtime, did we see any evidence this year of the ‘shareholder spring’ – the backlash by shareholders on executive compensation and other corporate governance matters that has had a major impact on AGMs globally? Lucy Newcombe, Director of Corporate Communications at Computershare, reviews the 2012 AGM season, both locally and globally, and provides insight into the trends and quirks that characterise this crucial exercise in shareholder communication nationally and internationally.
With the continuing financial crisis, it has been rare in recent years that the AGM season around the globe has passed sedately and peacefully – and this year has so far proven to be no exception.
The UK media has heralded a ‘shareholder spring’ with unprecedented levels of ‘no’ votes against proposed remuneration packages; Australia has seen the introduction of the ‘two strikes’ rule with the board forced to stand for re-election if 25% or more of votes are cast against remuneration two years in a row; and ‘say on pay’ legislation was recently enacted in the US.
Closer to home, this year the Hong Kong market has seen new requirements relating to AGM procedures in the corporate governance code and associated listing rules (see ‘Required reading’ on page 13). What effect have these new requirements had on AGMs locally? What were the trends in this year’s AGM season, both locally and around the world? Did attendance, voting and the number of questions go up or down? What issues arose? Is there significance and value in the physical AGM in today’s digital age?
Hong Kong and mainland China
Over 1,000 AGMs take place in Hong Kong and mainland China in a relatively short window between mid-April and late June, placing pressure on venues and logistics providers during this time.
In 2012, the most popular venues in Hong Kong for larger companies were hotels in Central, Admiralty and Wanchai. Smaller companies still typically hold their AGMs in their own premises.
In China, over 60% of AGMs were held in Beijing, with Shanghai, Shenzhen and Chongqing top amongst the other locations. 59% of companies held their AGM at their office and the remainder used a hotel.
Recent changes to the corporate governance code and associated listing rules introduced by the Hong Kong stock exchange now require Hong Kong-listed companies, amongst other things, to:
- avoid ‘bundling’ resolutions and, where they are ‘bundled’, explain the reasons and material implications in the notice of meeting
- get shareholders’ approval at a general meeting for any proposal to re-appoint or remove auditors before the end of the term of their office, and
- ensure that external auditors attend the AGM to answer questions about the conduct of the audit, the preparation and content of the auditors’ report, accounting policies and auditor independence.
Each of these amendments could have changed the face of an AGM with the potential for more questions taking extra time and requiring more preparation on behalf of the company secretary. However, analysis of this season’s meetings has shown that this was not in fact the case – at the vast majority of AGMs there were no extra questions as a result of these amendments, whilst at a few there were merely short questions about the credentials of the auditors, their background and experience. In the same vein, there was typically no increase in the number of resolutions in spite of the introduction of the code provision on bundling, though this could change in future seasons.
Interestingly, where questions are asked, they generally follow different themes in Hong Kong and mainland China. Shareholders from Hong Kong tend to ask questions regarding stock price, dividend and director’s fees. Those in mainland China tend to ask questions regarding business performance, company development plans and industry situations. There are some meetings that always have a significant number of questions and those that get none at all – but the general level of questions being asked did not change dramatically in 2012.
Something which did change significantly for this year’s meetings was the level of attendance. Across the board, there was a more than 44% increase in shareholder attendance, with this figure more pronounced for bigger companies – Bank of China for instance had 880 more attendees in 2012 than 2011, whilst China Construction Bank experienced a massive jump to 1,600 people, from just 13 in 2011 (held in the PRC) and 478 in 2010 (see ‘Total number of attendees’ below).
However, this increase in attendance did not translate into an increase in voting, with a small decline year on year in the voting figures (see ‘Voting rates in large meetings’ below).
To understand a potential reason for this, we need to look a few years back. It used to be common practice for companies to treat shareholders attending their AGM to lunch following the event. As shareholder numbers increased this became impractical and so companies moved to offering a buffet which could accommodate more people – which in turn became a drink and snack as numbers continued to rise over the years. Today, companies often find it easier to hand out a voucher or ‘goody bag’ rather than deal with the logistics of refreshments – again this is designed to enable them to cope with shareholder numbers. This shows how attendance does not necessarily correlate to an increase in voting as some shareholders see the meeting as an opportunity for interaction with the company informally via the collection of a voucher rather than formally through the necessity to vote.
The increase in attendance at Hong Kong meetings is not without other challenges, such as locating a venue which can cope with the numbers. Some countries around the globe, including the US and Germany, offer the option for shareholders to attend meetings online rather than in person – this could be something for consideration if attendance numbers carry on climbing. It’s worth noting that the law in Hong Kong does not currently allow for online meetings, so would need to be amended should it be an option companies want to pursue. Russia is just making such an amendment to its legislation, as lawmakers feel online meetings will be a good option given the size of the territory.
Although voting figures were slightly down overall, there was an increase in the number of companies choosing to use wireless voting tools to deliver increased transparency at their meeting. Prada and Alibaba joined MTR and AIA in using wireless handsets and displaying instant voting results, with good shareholder feedback. Elsewhere in the world, 34% of the UK’s FTSE 100 companies now use wireless voting technology at their AGMs.
Another issue worthy of mention is the fact that meeting procedures are significantly different for Hong Kong listed companies and those with a dual listing in both Hong Kong and the PRC. For instance, companies with both A- and H-shares need to comply with regulations which state that they must announce the number of shareholders attending and the associated number of shares represented, before the meeting commences. This means that they have to stop registration at a certain point and that anyone arriving late cannot be given a voting paper – a fact many shareholders are unaware of. Typically, they are used to attending the AGM of a Hong Kong-only listed entity and being able to obtain voting papers any time up until the vote starts. These types of differences in procedure mean that shareholders can be confused when attending several meetings in quick succession. Companies can help their shareholders understand these procedures by explaining them in advance with the meeting papers and providing extra information on their websites.
Around the world
AGMs have not just been taking place locally – around the world companies have been undertaking the same precisely-planned exercise.
This year saw Australia’s first examples of voting via smartphone – from a QR code embedded in the AGM materials straight through to the online portal. This technology is now being rolled out across North America and is expected to be available in Europe for the next meeting season. Current legislation in Hong Kong does not allow for this kind of voting.
The challenges that Australian companies had to contend with this year included the introduction of the ‘two strikes’ law designed to give investors more power (as mentioned above, this requires the board to stand for re-election if 25% or more of votes are cast against remuneration two years in a row). 106 companies (53 managed by Computershare) received a first strike in 2011. 14 of these are companies in the ASX200 and a further four are in the ASX100.
The single most important element of the US meeting season was whether a company’s executive/ CEO pay is aligned with company performance and pay, and performance of the company’s peers. With a ‘say on pay’ (SOP) vote now standard at US meetings, shareholders are becoming used to having a voice on executive performance and it is also evident that proxy advisers have a significant influence on the outcome of this vote.
As of 13 June, 1,714 US companies had held their 2012 annual meetings and associated SOP votes:
- 40 companies (2.6%) had failed SOP votes, up from 1.2% in 2011
- 74% had passed SOP votes with 90+% support, and
- 91% had passed with 70+% support.
Two general categories of companies had problems with 2012 votes:
- those which failed or had close 2011 SOP votes and, in the opinion of the proxy advisers, were not sufficiently responsive to shareholder concerns, and
- those which failed the proxy advisors’ 2012 pay for performance voting policies.
Post the global financial crisis and with continuing economic turmoil in Europe, the UK season had both a political and media focus on executive pay. Historically, shareholders have been supportive of remuneration packages in FTSE100 companies:
- average shareholder support for FTSE 100 remuneration reports = 90.6% (2003–2011) (Source: Manifest)
- average support for FTSE 100 remuneration reports in 2012 = 85.4%.
‘No’ votes in relation to remuneration reports are extremely rare in the FTSE 100 – however, the media-titled ‘shareholder spring’ in 2012 saw two companies – Aviva and WPP both lose this vote with many other FTSE companies finding it an extremely close run thing.
The consequence of loss or very near loss was dramatic – the CEOs of Aviva, AstraZeneca and Trinity Mirror all stepped down as a result, events almost unprecedented in the UK AGM season.
Voting attendance in Continental Europe is very different to that in Asia. It is normal for large companies to attract thousands of attendees and the very largest venues are hired to cope – football stadiums and concert arenas are among the most popular. In Italy, a co-operative bank, Banca Popolare Emilia Romagna, had 13,000 members participate in its AGM. In Germany, where the European rule of having to answer all shareholder questions applies, this year’s longest AGM started at 10.00am and did not conclude until 11.30pm. Another AGM went through 86 shareholder speakers with more than 400 questions between them, before voting started on the 38 resolutions. Online participation seems to be increasing in Germany, with one company having more than 100 online attendees.
There are clearly vast differences in AGMs around the globe – from attendance Shareholders from Hong Kong tend to ask questions regarding stock price, dividend and director’s fees. Those in mainland China tend to ask questions regarding business performance, company development plans and industry situations. and voting levels, to the types of resolutions that have to be raised by law – each region has its own quirks. What is common amongst all companies no matter where they reside is the feeling that the AGM remains a vitally important exercise, allowing a company to truly understand the sentiments of its shareholders and to engage with them on their views about the business. It is inevitable that legislation like the US ‘say on pay’ and the Australian ‘two strikes’ rule will make their way to other countries in the not too distant future – so using the opportunity your AGM provides to truly understand in advance how these may affect your company when introduced, is a sound idea.
Lucy Newcombe, Director of Corporate Communications
Lucy Newcombe is living and working in Hong Kong. You can connect with her via Linked-In or Twitter (her Twitter name is @lucyjayneN).
SIDEBAR: Required reading
The latest changes to Hong Kong’s corporate governance code and associated listing rules, which became effective earlier this year, have revised the regulatory regime for local AGMs. While the changes do not appear to have increased the number of shareholder questions or the number of AGM resolutions in the 2012 AGM season, company secretaries need to be aware of the new compliance requirements. The more significant changes include:
• a new code provision clarifying that issuers should avoid ‘bundling’ resolutions and, where they are ‘bundled’, explain the reasons and material implications in the notice of meeting
• a new listing rule to require shareholders’ approval at a general meeting for any proposal to re-appoint or remove auditors before the end of the term of their office
• a new code provision stating that the issuer’s management should ensure the external auditors attend the AGM to answer questions about the conduct of the audit, the preparation and content of the auditors’ report, accounting policies and auditor independence
• an amended listing rule to allow a chairman at a general meeting to exempt certain prescribed procedural and administrative matters from a vote by poll and to clarify the disclosure requirements regarding poll results
• a new code provision, upgraded from a recommended best practice, stating that non-executive directors, including INEDs, should attend board, committee and general meetings and contribute to the issuer’s strategy and policies
• a new requirement that issuers must disclose details of the attendance at general meetings of each director by name in its Corporate Governance Report, and
• a revised code provision on attendance at the AGM of the chairman of the board and the chairmen of the audit, remuneration and nomination committees to include chairmen of ‘any other committees’.
The listing rule amendments mentioned above became effective in January this year, while the code amendments became effective in April. More details can be found on the stock exchange’s website (www. hkex.com.hk).