Ben Rebbeck, Executive Director
Kiwis have for some time been seen to be leading their Aussie cousins in numerous areas of social, commercial and legislative progress. And Investor Relations, specifically in relation to retail-focused shareholder meetings, is no exception.
It is easy for Australians to make excuses as to why so often New Zealand leads the way on innovation. Australians can rationalise that New Zealand needs to innovate due to its location and geography, relative economic strength, small population, or even to compensate for its embarrassment about making spurious claims to have invented the Pavlova! However, perhaps we should consider whether the Kiwis are also leading the Aussies in the management of retail shareholder engagement and ask questions such as: should we do that too, or can we do that better?
For some time now, New Zealand listed companies have been able to hold ‘Virtual’ Annual Shareholder Meetings (ASMs) as they are termed in New Zealand. That is, a shareholder meeting where holders attend via phone or internet – only.
Significant drivers for New Zealand’s move to introduce Virtual ASMs were:
- ever decreasing attendance at physical meetings;
- rising costs of holding in-person meetings;
- improved use of management and directors’ time; and
- declining relevance to the company – as major shareholders receive briefings and vote in advance of the meeting.
However to date, most New Zealand companies have preferred a hybrid model combining ‘virtual’ and ‘in-person’ attendance. In the United States too, the Virtual/Hybrid stockholder meeting has become more common over the past decade as online streaming technology has advanced and the cost of webcasting has declined.
These same factors impact ASX-listed companies, arguably to a greater extent, leading to calls from numerous organisations for Australia to enable and adopt virtual AGMs.
In 2006 the Australian Institute of Company Directors and the Governance Institute encouraged Australia’s regulators and companies to make the leap to embrace Virtual AGM’s.
Last year, when talking about the Virtual AGM, David Geddes, former CEO of share registry Link Market Services said:
“It’s just a no-brainer. Why wouldn’t you offer an online option and try to engage as many shareholders as you can? It seems crazy not to.”
One presumes David had the best interests of listed companies in mind, rather than the revenue generated from Link’s Virtual AGM technology.
The New Zealand Experience
In the last two years, only a handful of NZ companies have made the move to ‘Virtual only’ ASMs. These included telco Spark NZ, which describes itself as NZ’s leading digital services company, petrol and fuel company Z Energy, and accounting technology company Xero.
Despite their good intentions, moves by each of these companies’ have been widely criticised by many retail investors. Indeed, Michael Midgley, Chief Executive of the New Zealand Shareholders Association (NZSA), accused Z Energy of being “out of step” with other listed companies in ditching an in-person meeting.
Notwithstanding that only 19 shareholders turned up at Z Energy’s 2016 ASM, the level of criticism of a virtual meeting prompted a rethink from Z Energy, which has now reverted to a “hybrid” meeting.
Spark’s leap towards the Virtual ASM comes despite only 65 Spark shareholders attending online in 2016, while 123 showed up in person. Addressing similar concerns from Spark’s shareholders, its Chairman pledged that physical meetings will again be held if any controversial issues arise that need to be debated.
Xero explained its decision to hold a Virtual ASM, via a hosted meeting in Sydney, by saying a “significant proportion” of its shareholders were based in Australia, as were a growing number of analysts who tracked the firm.
The Institutional Investor’s View
On 25 September 2017, Institutional Shareholder Services Inc. (ISS), the world’s largest proxy advisory firm, released the results of its annual global benchmark voting policy survey.
In the 2017 survey, respondents were asked to provide their views on the use of online mechanisms to facilitate shareholder participation at general meetings. More than one-third (36%) of the investor respondents indicated that they generally consider the practice of holding “hybrid” shareholder meetings to be acceptable, but not “virtual-only” shareholder meetings. Another 32% said they would also be comfortable with “virtual-only” shareholder meetings if they provided the same shareholder rights as a physical meeting. 19% said that they would generally consider the practice of holding either “virtual-only” or “hybrid” shareholder meetings to be acceptable, without reservation.
Looking at this from the high level view, the institutional investors that ISS surveyed are evenly split (51% vs 49%) as to whether there is a place for virtual-only meetings.
This is hardly a glowing endorsement!
So if we are to make the leap towards Virtual AGM’s, what lessons can we learn from our Kiwi cousins?
In each case, the NZSA expressed a concern that virtual only meetings would deny shareholders the chance to “eyeball” directors. At the heart of this argument is that retail investors value their ability to bail up directors and management and require answers of them on matters about which they require further explanation, regardless of whether they need that opportunity at a particular ASM/AGM.
It may appear easy to reassure shareholders that they won’t lose this ability – referencing such things as the availability of Investor Relations teams, proactive retail broker roadshows, webcast access to institutional briefings and continuous disclosure announcements.
However, as one of Spark’s shareholders succinctly stated, older investors like himself feel awkward using the web to question directors rather than face-to-face communications. The point was also made that the low turnout to previous Spark ASM’s was more likely attributable to the meetings being held in the middle of a work-day and at a location with limited parking availability.
Understanding the Retail Audience
Determining the best ways to engage with retail shareholders at AGM’s comes down to the composition of a company’s retail shareholder base and the individual needs of its shareholders.
While retail shareholders are often viewed as an amorphous bunch, products such as First Advisers’ proprietary Retail Holder Composition Reports can deliver interesting insights on an individual company’s holding structure, which can radically shape engagement decisions. These include summarising:
- the likely age profile and holding structure of retail investors (e.g. individuals, SMSF, Pty Ltds, trusts etc);
- what type of investment advice they receive;
- where they are based;
- how long they have invested; and
- the acquisition price and unrealised gains or losses on their holdings.
Each of these pieces of information provides a valuable guide as to the nature of the individuals on a company’s register and how they would likely prefer to engage. Tailoring retail Investor Relations activities accordingly will therefore lead to the most beneficial outcome for both the company and its retail shareholders.
So before we can answer the original proposition: should an Australian company push to hold Virtual only AGMs too; we need to ask one more question – Who is your audience? Hint – it’s not the company.