Recent comments by the CEO of America’s biggest bank suggest AGMs are losing power and relevance. David W Duffy delves into the details
Annual general meetings (AGMs) are crucial in corporate governance. They are a legal necessity and provide a valuable opportunity for shareholders to speak to leaders. These days, however, criticism is surfacing in some companies that AGMs are becoming a nuisance.
Activist pressure
So, what exactly is turning the tide on AGMs and their perceived value? In short, the activist pressure exerted recently at some very high profile AGMs.
At Disney’s most recent AGM in early April, for example, shareholders were encouraged to vote in favour of a proposal that would see the entertainment giant pay for services for people choosing to detransition. The Disney proposition had no material impact on the company’s strategy, and JPMorgan Chase Chief Executive Jamie Dimon took issue.
According to Fortune, Dimon claimed that AGMs were falling victim to “spiralling frivolousness”, dominated by lobbyists, activists and interest groups, which bear little relation to the company’s strategic direction.
There’s no “right or wrong” for a statement like this; it is really just a measure of whether or not other corporate leaders agree.
The leaders of some companies could easily agree with Dimon, especially those at the helm of companies whose AGMs are rife with debate. In companies where AGMs are quieter – sometimes to the point of formality – leaders may not need to worry.
Importantly, board members and other stakeholders must remember that anything is possible at an AGM. They could, for example:
- serve as a hotbed for debate;
- become a forum for topics considered politically charged (anything from geopolitics to religion to social issues to climate change);
- feature shareholder proposals put forward solely to make a point, win support or express anger; or
- seem like a waste of time to corporate leaders because of all the above.
None of this is a given, however. It is far more likely in bigger, global companies – household names consumers feel are so big that their impact stretches beyond their mission statement.
In these scenarios, stakeholders generally want the company to take a stance on every political issue, and shareholder proposals at AGMs are part of this.
Are AGMs fit for purpose?
The threat of any of the above scenarios may mean that some companies’ AGMs are not fit for purpose. It depends on the goals of the people who attend. Companies can’t just get rid of AGMs, however.
AGMs are a cornerstone of business. They often serve as the one opportunity many small shareholders have to speak to the company’s leaders – and, by law, this chance must always be available.
An organisation considering changing its AGM must first examine its articles of association. These are usually where AGM rules like voting procedures and scheduling are found. Beyond this, there may be wiggle room.
AGM options
It is advisable that leaders and participants accept that the AGM will be active, full of differing opinions and multiple proposals that go nowhere, making it feel like a distraction.
If you approach the situation with this prepared mindset, you might find it easier to register the elements of impactful processes beneath the noise.
It’s also advisable to get proactive about issues. You may be better prepared if you anticipate the problems that shareholders are likely to raise and discuss them at the executive and board levels.
In the process, you could gain critical insights that shape your understanding of shareholder opinions and frame a more robust conversation.
However, if an organisation still wants to change their AGM – and the articles of association allow it – boards can change things like length, the requirement for in-person attendance and the time balance between corporate leaders and shareholders.
It must be noted, though, that if a board changes any of these elements, it may appear to be attempting to be creating barriers to debate and shareholders might not respond well.
The bright side
Many companies have seen their AGMs dominated by activist noise in recent years. While this issue can be addressed by making changes, the bottom line is that the AGM as a concept is here to stay.
Organisations should view the “noise” as an invitation to develop relationship management skills and stay on top of emerging trends. These are hugely important for good corporate leaders, and a busy AGM could be the time to flex those muscles.
David W Duffy is a founder of the Corporate Governance Institute
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