It’s the end of another busy AGM season, particularly notable this year for a marked increase in ‘against’ votes for some Hong Kong and mainland China-based companies, and for the 29 meetings valiantly held close to a black rain storm in Hong Kong. Lucy Newcombe, Director of Corporate Communications at Computershare, summarises the season both locally and globally, highlighting the key developments and future trends.
The 2013 AGM season has not captured as many global headlines as the 2012 season – when regulatory changes in the form of the ‘two strikes rule’ and ‘say on pay’ in Australia and the US respectively caught media attention, and CEO resignations over remuneration votes made dramatic news copy in the UK. The 2013 season stood out locally, however, for the realisation that shareholder behaviour across Hong Kong can often be disturbingly different to that in the rest of the world – with the potential for very worrying consequences.
Hong Kong and mainland China
Year on year attendance figures have risen yet again – with an overall increase of more than 5,000 attendees at the largest meetings across Hong Kong and mainland China.
A black rainstorm warning was in force on 22 May 2013; with around 29 companies in line to hold their meetings in Hong Kong that day. Following removal of the signal at 9:45am all the scheduled meetings went ahead without postponement – company members, registrar staff and shareholders alike picked their way around the debris to make sure it was business as usual! Two companies actually had their AGM while the black rainstorm signal was hoisted with a third of the number of attendees compared to last year turning up for one of them. It’s clear that companies both in Hong Kong and mainland China need to have in place tried and tested contingency plans for having to cancel a meeting in extreme circumstances, with particular emphasis on the channels of communication in such an event.
The dichotomy of attendance not corresponding with voting levels has been even more obvious in 2013, with average voting levels 7% lower year on year. While this may at least be partly due to the fact that AGM regulations for companies with a dual listing in both Hong Kong and the PRC require the number of shareholders attending, as well as the associated number of shares represented, to be announced before the meeting commences. This means that if shareholders turn up late to a meeting they are not entitled to
vote but are classed as having ‘attended’. Another, perhaps more salient, factor is that many people merely attend to get freebies and then leave even before proceedings have commenced.
Feedback from attendees in some cases indicates that they leave because they can see they will have to stand. Given the overall upward trend in attendance, if your venue is at capacity, it would be wise to look for a bigger one for future years, especially if you are interested in encouraging voting.
Overseas, the trend in attendance and voting levels has generally been going in the opposite direction, with many jurisdictions seeing reduced attendance but moderately increased voting, often prior to the meeting via online channels. If Hong Kong and mainland China want to stem a downward slide in voting then enabling and encouraging the appropriate legal channels for online voting could be a cost-effective and efficient opportunity.
Meetings during the year saw continued pressure from shareholders to offer refreshments – with MTR changing its previous policy for 2013 and giving attendees responsibly-sourced drinks and cookies which were met with much pleasure.
While voting levels were down in general relative to attendance, companies found that the global trend for votes against resolutions reached AGMs in Hong Kong for pretty much the first time. Some big name companies in a variety of industries experienced increases in ‘against’ votes for resolutions, including the nomination of directors and share movements, encompassing both general mandates for allotments and the repurchase of shares. ‘Against’ votes reached as high as 32% in one case.
Shareholder questions spanned both historical themes and new topics of interest. As in previous years, common queries included requests for information on company business plans and development strategies, financial results and the share price, as well as, of course, the familiar requests for increased dividend rates, scrip dividends and better food and gifts for attendees.
Two relatively new topics which emerged in shareholder questions in this year’s season were remuneration and board capability. While these themes are commonly raised at meetings in the UK, US and Australia, neither have had much airtime in Hong Kong or mainland China previously. Shareholders asked about the standards or rationales used to determine directors’ remuneration, and for information on the number of meetings directors attended during the year and the duration of each meeting. In some cases shareholders asked whether directors were too old to carry out their functions. The issue of equal female representation on boards also raised its head more frequently.
Around the globe
Computershare client companies experienced a two-speed voting pattern this season, where voting participation was up for the larger companies but down across the board. For most issuers, 90% of proxy votes were rushed through the door in the final days before cut-off. Very small numbers of security holders attended meetings in person (an average of 10% down year on year over the past four years) with record numbers lodging their proxy vote electronically. For meetings that offer online voting, nearly a quarter of shareholders opted to use this channel. Mobile device voting accounted for 7.1% of total proxy votes lodged via all online channels in 2012. One company reported that 10.1% of its investors who voted online in 2012 lodged their proxy vote using a mobile device. This represented 57.8% of this company’s total votes lodged online.
The ‘two strikes’ rule, designed to provide investors with a greater say on executive remuneration, was in its second season this year. The rule requires a company receiving a vote of 25 per cent or more against its remuneration report for two years running to implement a board ‘spill’ – putting all board positions up for re-election within 90 days.
This season saw the first group of companies face their ‘second strike’ and contemplate the practical implications in regards to communicating with their shareholders along with planning for a potential ‘spill’ meeting. Nearly a quarter of the companies who received a first strike in 2011 received a second strike in 2012. The highest percentage of votes against a remuneration report resolution for an individual company was 95%.
In Denmark companies are putting an increased effort into planning an AGM that creates value for all stakeholders and that encourages open shareholder communication. Newly announced corporate governance recommendations will lead to even more focus on shareholder dialogue and active ownership at next year’s AGMs.
Shareholder focus remains on executive compensation, though the local level of shareholder activism remains low, with only a few banks experiencing shareholders verbally challenging their board.
Since 31 December 2012, the Toronto Stock Exchange (TSX) has implemented new rules on director elections designed to improve corporate governance principles so that security holders can hold directors accountable. Among other things, the new rules require TSX listed issuers to elect all directors annually.
Shareholder activism and the number of proxy disputes have increased in Canada and, as a result, Canadian issuers are either implementing or considering implementing an advance notice policy. Such policies are common for US issuers where they have been used for 20 years to guard against unexpected attacks from dissidents. Generally the policy requires an issuer to be advised of any additional nominees to the board of directors before the meeting and within a certain prescribed time-frame. An advance notice policy also ensures that shareholders who are not present at the meeting are advised of any additional director nominees and can therefore make an informed decision regarding all of the director candidates when casting their vote.
In Hong Kong, ad hoc resolutions related to the election of the chairman of the meeting or adjournment of the meeting can be proposed by shareholders holding enough interest. For Hong Kong and mainland China, other ad hoc resolutions proposed by shareholders, such as the re-election of a director, should not be voted in the same meeting. The company needs to send out a circular containing details of the resolution and notice of another meeting so that all shareholders can consider and vote.
Also in Canada, new ‘notice-and-access’ regulations came into effect in February 2013 whereby issuers can choose to mail a notice of meeting and include ‘access’ information that, in lieu of the customary full proxy package, details where the proxy materials are located on the internet. Issuers will benefit from reduced printing and postage costs by using the notice-and-access method for mailing proxy materials.
Some states now permit online-only meetings and as a result a degree of security holder scepticism has emerged. For example, security holders have expressed fears that their questions have been prioritised, rephrased and ignored, or responses have been delayed to be answered outside the meeting and are therefore not on public record. Concerns have also been expressed regarding the transparency of security holder questions and management’s answers, as well as whether or not security holder questions asked online are visible to everyone at the meeting.
The greatest change in the US AGM space was the ongoing impact of the ‘say on pay’ rule that gives shareholders a non- binding vote on executive compensation. This vote is mandatory for all public institutions within the US. This has encouraged greater shareholder and proxy advisory engagement, as well as better proxy statement explanations from issuers on their compensation programmes. There has also been more conformity among issuers across compensation policies and programmes, likely driven by the influence of proxy advisor firms and investor policies on pay that often use the advisory firm policies as a starting point for developing their own.
The 2012 ‘shareholder spring’ seems to have largely been a one-off – the 2013 AGM season was a lot quieter overall. We have continued to see some high opposition to executive pay in particular, but with no significant defeats or executive ‘scalps’ as a result. This is due to the fact that issuers took on board the lessons of 2012 and are determined not to be caught out again. There is evidence that many companies have worked to understand their shareholder base and to be more proactive in shareholder engagement, largely mitigating another round of resolution defeats – though shareholder activism remains a real threat and companies must continue to understand, plan and engage to avoid a return to the rollercoaster season of 2012.
While the UK currently has an advisory vote on pay policy, from year-end 30 September onwards listed companies will be required to give shareholders a binding vote on future pay policy at least once every three years. Shareholders will retain the existing (but entirely separate and non-binding) annual vote to approve the remuneration report. The new policy will also cover payments for loss of office. Any payment made by a company either needs to be within the parameters of the policy, or will need separate shareholder approval. Issuers will need to think about how they communicate this resolution to shareholders for approval, so that it is clear and stands a maximum chance of approval. They will also need to think about what happens if the binding vote doesn’t pass and have contingency plans in place.
Finally, it is worth noting that social media continues to creep into the accepted communication channels
for investor relations and shareholder communication. This can be seen both on the company side – for example the Securities and Exchange Commission
in the US ruling that company announcements can be made via social media as long as shareholders are expecting to see them there, and on the activist side – recordings of AGMs and protests against resolutions are freely available on YouTube, and blogs and activist websites abound. Companies need to be attuned to both the positives and negatives which these new media channels bring to investor relations.
Director, Corporate Communications, Computershare Ltd
SIDEBAR: Shareholder behaviour
The 2013 season stood out for a marked increase in poor shareholder behaviour at meetings in Hong
Kong. In one stand-out incident, an individual known for repeated rude behaviour went so far as to threaten to sexually violate a female member of meeting staff if she did not let him into a meeting. The man in question was attempting to enter a meeting on behalf of his wife without a proxy having been registered in his name. Several shareholders in close proximity expressed their dismay at the behaviour and went as far as to raise the issue while registering at other meetings held in the following days. We took specific action against this shareholder and were supported in doing so by numerous issuers.
However, the incident prompted us to conduct a wider review of the behaviour directed at meeting staff and the results do not make pleasant reading. While this is of course not indicative of the behaviour of all shareholders, it was found that most staff had experienced some form of rude behaviour, such as being sworn at, having papers or pencils thrown at them or having someone thump on the registration desk to make a point.
In the vast majority of cases this behaviour was sparked by discontent in the absence of a proxy being lodged, or over the rationing of free vouchers, gifts or refreshments. Staff said they regularly felt intimidated or frightened by shareholder behaviour.
This requires pause for thought as, with the exception of Russia where frustration against issuers and company performance (not staff), is more marked than other jurisdictions, our enquiries show that Hong Kong seems to be the only place to have (and frankly to tolerate) this kind of behaviour from shareholders. Should we be content to let this kind of attitude continue to manifest itself at our AGMs? Should we take this behaviour quietly? Or should we take a stance against rudeness, threats and violence to stem the tide before it escalates into something potentially more serious?
Meeting staff would prefer the latter and we think it should be a matter of pride for locally listed entities to set some benchmarks for behaviour which will not mark us out against the rest of the world and ensure meeting staff can provide excellent service without fear. We will be equipping our staff with more training on dealing with aggressive or abusive customers, and will continue to seek your support in dealing with such issues. I believe that there is also the possibility to educate investors on how their rights to attend meetings are affected when they are not the registered shareholders, including making the appropriate arrangements through their custodian or broker to facilitate their ability to attend.
James Wong ACIS ACS CEO, Computershare Asia
Please do email us at: hkinfo@ computershare.com.hk with your thoughts on how we can combat this disturbing issue.