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I have written before about annual general meetings (AGMs) being rather dull affairs that in some cases barely last as long as the complimentary cup of coffee (if any is provided).
There are virtually no questions from the floor and voting is mostly done by proxy (with the shareholders being absent but instructing the chairperson how to vote on their behalf).
And practically all resolutions get carried by massive majorities.
As shareholders, this is partly our fault because private investors tend to not even bother voting.
This is because private investors often take the view that their votes are too small to count.
This is true, but just because our view doesn’t win doesn’t mean we shouldn’t vote.
This is a very important part of being an investor.
Fortunately for me, last year my online broker enabled online proxy voting for shares I own. So, I can log in and submit my votes and they will be forwarded to the AGM to be counted. As a result, I have voted at every AGM since then and I have hence also created a voting process for myself.
For example, if a company does not have a policy of auditor rotation, I will always vote against the auditors.
I also check meeting attendance records for directors and if they’re attending less than 75% of board meetings, I vote against them. For the most part, the issue of remuneration is more complex as the vote is non-binding.
But I do read the report of the remuneration committee and take into account bonuses relative to past profit growth.
The shocker is that often when the results of the AGM are released via Sens it is patently obvious that only a few small shareholders voted against any of the resolutions.
Last year Woolworths* had a resolution, “Reimbursement by the Company to the Non-Executive Directors of the value-added tax on fees paid or payable from 1 June to 31 December 2017”.
In other words, the directors had to pay tax and Woolies wanted to pay it for them. Only 1.11% of shareholders voted against the resolution.
Put the other way around, did 98.9% really think it was a grand idea to pay the non-execs’ tax bill?
I wish I worked for that company so it could pay my taxes too.
The problem, in part, is that active managers seldom want to rock the boat and they rather just exit the share if they’re unhappy.
That’s totally within their rights but at the end of the day somebody owns the shares and mostly they’re voting as a herd with management.
Passive managers take it a step further and don’t even vote their shares at all. Many suggest that this is part of the problem with the passive industry (although this really is the pot calling the kettle black).
But I think there is a real opportunity for the passive managers.
Passive managers do not decide what shares to buy, they simply buy the index. Active managers on the other hand can buy the supposedly better shares.
But take it a step further – passive managers are perhaps the only true long-term holders (as long as the stock stays within the index being tracked) whereas active managers by the very nature of their mandate are constantly entering and exiting shares, typically in a shorter time frame.
Passive managers should therefore get in on the AGM voting.
They could appoint independent advisers to inform them how to vote at the AGM and passive could start to become a real force for good governance.
Currently passive holds a very small percentage of votes at any AGM, but that will grow over time and passive managers can become an important driver for the long-term good of a company.
*The writer owns shares in Woolworths.
This article originally appeared in the 26 April edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
