’tis the season of shareholder meetings

NZSA Disclaimer

This is always a tricky time of year. In the 10 weeks from mid-September to end-November, NZSA expects to cover around 70 shareholder meetings – around half of our annual coverage. This is not unusual. Each year, NZA undertakes a review of shareholder meetings with our 2022 review data showing that if anything, the “peak load” is getting even worse, with significant contention peaking in November.

In addition to the pre-work involved in reviewing corporate disclosures, discussing issues with company or board representatives and determining NZSA’s proxy voting intentions, there’s a hardy group of NZSA volunteers making their way around various meeting venues to ask questions of our listed company boards. Most of those questions are driven by the volunteers themselves – but NZSA will usually pose concerns both to the company and to our volunteer representative.

And as an aside, if you’re not subscribed into NZSA’s proxy voting service – join up! It’s an easy way to make sure your voice is heard and your votes are counted. It’s free for individuals and you don’t even need to be an NZSA member to subscribe.

It was interesting to read the commentary in stuff.co.nz this week from Mike O’Donnell, a well-known Wellington based company director. It’s clear that most directors value shareholder meetings and the insightful questions they generate. As Mike notes;

Shareholder meetings are a crucial element of corporate governance, offering transparency, accountability and the opportunity for shareholders to participate actively in the company’s trajectory. Thoughtful questions inject light rather than casting shadows.

Mike O’Donnell, The Post, Sep 23rd 2023

Too true Mike, we couldn’t agree more. Mike highlights four key areas that can form the basis of any shareholder enquiry, covering board capability/skills, risk, cashflow and long-term funding. Again, we agree – although it’s fair to say that NZA adopts a broader approach when it comes to the issues that concern us. Our current focus on more effective CEO remuneration disclosures and a beefed-up director independence regime mean that our concerns are often systemic in nature.

It’s clear that directors value the interaction with their shareholders. Mike’s comments above are one of many similar sentiments that we hear from directors of companies, regardless of size. That reflects a sea change in the quality and transparency of corporate governance since the early 2000’s. Yet, it is that very improvement that is driving further concern.

Shareholders are simply not turning up to shareholder meetings.

The same directors that tell us how important shareholder meetings are lament the fact that the huge effort they put in to providing transparency for shareholders is rewarded by only a few attendees. The increasing difficulty in engaging retail shareholders is a common theme amongst many of the conversations NZSA has with directors as part of our assessment process.

This was a further key insight from our 2022 meeting review. Physical attendances are reducing, and with (most) virtual attendances flat-lining, it points to a decrease of engagement by shareholders with their investments. Much of that will be down to a change in how people choose to invest; the rise in DIMS (discretionary investment managed services), funds and exchange-traded funds mean that there is less direct involvement of individuals with markets.

Use it or Lose it

But there is a bigger risk here. The old adage of “use it or lose it” has never been more relevant. Companies can go in two directions; one option is to extend the range of insight they offer to shareholders at meetings and thereby encourage further constructive questioning and challenge. This takes the shareholder meeting well beyond the ‘compliance activity’ that many directors and shareholders perceive it to be.

Our research tells us that as retail investors, you’re looking for true insights at shareholder meetings.

The other direction is more pragmatic, but ultimately far less appealing for everyone (including the company’s themselves). And yet, in the current cost-constrained environment, is likely to be the road more travelled. That is to treat the shareholder meeting as a ‘cheap and cheerful’ compliance-focused exercise. Such a format leaves no room for insight or further knowledge – and will heftily contribute to the current perceptions of many shareholders that shareholder meetings are “boring”.

For a whole group of younger shareholders, such meetings are also likely to feel intimidating.

All this is another key reason for NZSA to keep doing what it does.

In our perfect world, we’d love investors to show up to shareholder meetings – even if they are represented by NZSA or their DIMS provider.

In a more pragmatic world, NZSA has no problem asking questions on your behalf – so even if you can’t attend, please let us know the questions you want asked. it’s a reminder to the company and it’s Board of their wider shareholder base – even if the only person attending a shareholder meeting is the NZSA volunteer.

Oliver Mander