Annual general meeting is an institution for the protection of the shareholders of a company, which proves the ultimate control and destiny of a company is vested in the hands of its shareholders.
The aim of the paper is to explore how an AGM can be used to protect the rights of the shareholders and the level of transparency of a company’s disclosure in relation with the AGM. To achieve these objectives, two analyses have been conducted. First, the content analysis is employed to assess the effectiveness of the AGM by searching some of the practical issues of the AGM via the newspapers, magazines and other public domain media. Second, we also conduct a document analysis on the annual reports of public listed companies to examine whether these companies complied with the selected international best practices on AGMs set by various globally recognized institutions. The research finds that the AGM can be used as an effective tool to safeguard shareholders rights in their companies. In terms of disclosure, the researchers find that some of the international attributes such as notice of meeting are well complied by a majority of all the companies while a few other practices like disclosure on directors’ attendance was just ignored.
Annual general meeting is an institution for the protection of the shareholders of a company, which proves the ultimate control and destiny of a company is vested in the hands of its shareholders.
Introduction
The perspectives on globally applicable corporate governance that is related to
Shareholders protection. Among others, active shareholders should not be unduly hindered in their activities such as securities, tax and regulations while their rights to vote and participate in shareholders meetings should be protected and enforced. The investors also should consider the right to vote and participate in annual meetings as an asset that provides an opportunity to influence the direction and management of the company. These perspectives emphasis that the shareholders themselves must play their role in preserving the good governance of the company. General meetings that comprise of Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs) are some of the limited platform that can use by the shareholders to defend their rights and protect their investment in the company. As compared to other many good governance mechanism, there is a lack of attention been given academically on the EGM. This has motivated the current study to first, explore in what way the EGM can be used to protect the right of the shareholders and second, to examine the level of the disclosure of the company in relation to the EGM.
Shareholder Meetings
Every listed company, in common with all other registered companies, is obliged to hold an AGM at which specified items of business must be transacted. All shareholders are entitled to attend the meeting, at which three of the most important activities are:
1. The board giving an account of its management of the business in the preceding financial year.
2. The right of shareholders to ask questions of the board.
3. Shareholders voting on resolutions put to them by the board. Section I of this Chapter reviewed the kinds of resolutions that boards put to shareholders at an AGM. Similar resolutions may also be put to shareholders at additional Extraordinary General Meetings (EGMs) during the course of a year. For example, EGMs may be held to approve a rights issue or a takeover, when the timing does not coincide with that of the AGM. Two features of these meetings are that very few shareholders attend compared with the size of the share register and those that do so are overwhelmingly private shareholders and not institutional investors, particularly at AGMs. Normally EGMs are very sparsely attended by both types of shareholder, most votes being cast by proxy. Proxy votes are often described as being ‘in the Chairman’s pocket’, but in practice they are seldom needed by the board of the company to support the resolutions it has put before shareholders. This is because if, by a show of hands, the majority of shareholders present at the meeting support the resolution this is normally sufficient to pass the resolution. Only if one or more of those shareholders present demand a formal poll will a vote take place weighted by size of shareholding. In these circumstances, proxy votes held by the Chairman and others, plus those votes cast by shareholders present, will be counted and determine the outcome. Companies report that this happens very rarely, but that the number of occasions when a full shareholder vote is taken (of those present or represented at a meeting) is increasing.
FINDINGS AND DISCUSSION
A. AGM as a tool for shareholders protection The first objective of the research is to explore thepurpose of the AGM and the reason it was conducted by thecompany. There are scarce resources of AGMs in academic literature and less effort by researchers to monitor the AGMs conducted by any company. This gives motivation for this study, to understand why companies conduct EGMs and whether these AGMs can provide an appropriate platform for shareholders to protect their rights.
1) Removal of directors and appointment of new directors AGMs can be used if the shareholders feel their interestsare in danger as a result of unwise decisions by the directors.In the fierce and fast pace of the business environment, theshareholders should note tolerate and compromise with underperformers and dishonesty of directors or they will see their money fly away and never come back.The shareholders of a construction company had voted to remove its existing directors and install a group of new directors. This is because the capital reduction scheme proposed by the former directors to resolve a crisis accumulated losses In one case of a local finance institution, the AGM was conducted when the existing directors rejected the attractive offer from their rivals for a buyout plan. The shareholders voted not to remove the directors but to appoint more directors in the board with the hope that that the “shareholders’ directors will have more power to dominate the board and revive the buyout plan.
2) Rejection of takeover by another company This happens when the offer price is below the suitableprice of the shares. Normally, market price and the nettangible assets will be the basis for a suitable price. This isstraight forward but the hardest part is to determine thepremium to compensate the opportunities of costs of theexisting shareholders. There are no fast rules and hardnumbers to determine an appropriate percentage to mark up.The only method we have is the estimation of the potentialprofit increases as result of the takeover Shareholders, withlimited resources, such as brokers and analyst values,commentaries in newspapers should demand for aappropriate premium for their shares
3) Undervalued offer price for privatization Listed, delisted and relisted. What happens is actually thecompany in the first place does not have money for itsexpansion program, so needs public money to finance theproject, as borrowing money will cost them too much. A fewyears down the road, some people who dominate the powersee “jewels” and want to take it up all single cent withoutsharing. So, they apply for delisting by acquiring shares fromthe retail investors. Again, the problem is in finding the pricethat can satisfy the current retail shareholders, and it would still pose a big question, so the AGM can be used as a platform for the shareholders to negotiate good numbers for them.
4) Reject the unfair related party transactions This normally happened when the disposal or acquiringvalue of the assets does not reflect its worth and marketvalue. In one case, a company wants to acquire a piece of asset at a specified value and price. However, the quite similar type of asset has been purchased by another company at a one-third lower price than the intended price. Why is the company unable to negotiate and get a good price as the other company?
Obviously, if this transaction proceeds withthe original price, it will lower the profit of the company andthus, affecting the dividends.
5) Fighting against unreasonable capital reduction schemes The company operated under losses for a few years.Thus, carrying huge amount of accumulated losses. To“make up” the financial statement, capital reduction has beenproposed to clean up the loss. Should the money of theshareholders be used to redeem the management’s pastsins? If the proposed capital restructuring would dilute theexisting power of the shareholders and deteriorate theshareholders value in the long run, it is recommended thatthe proposal be rejected.
B. Disclosures of AGMs
Good management practices will inculcate good governance by the board of the company and its relationship with the shareholders and stakeholders. Currently, there is no standard requirement or regulation to measure or assess how companies should conduct meetings and make their disclosures other than guidelines or best practices recommended by leading professional organizations. In addition, there is also no organized or structured effort by the regulator or other parties to examine or assess the conformance of companies with regards to disclosures or Best Practices of company’s AGMs. Thus, the other objective of this paper is to discuss and explore some of the issues and international best practices pertaining to AGMs. The selected best practices include disclosures and matters pertaining to resolutions, notices, and frequency of meetings, directors and shareholders’ attendance, voting results, minutes of meetings, venue and time of AGMs.
1) Resolutions The EGM can be conducted to pass ordinary and specialresolutions. The current survey finds that 37 companiesconducted in total 48 EGMs. 32 EGMs were conducted topass ordinary resolutions, seven EGMs to pass specialresolutions, seven EGMs to pass both special and ordinaryresolutions while two EGMs conducted by two companiesdo not disclose the type of proposed resolutions.These resolutions passed were not commendable as theyshould have been more appropriately passed in AGMs.What is the purpose of having an AGM if it is not used todecide on ordinary matters? For special resolutions, amajority of companies conducted EGMs for the purpose toamend the Memorandum and Articles of Association of theCompany and proposed capital repayments.
2) Notices Majority international governance best practices requiredthat notices convening AGMs shall be given to shareholdersat least 14 days before the meeting and 21 days if the AGMis conducted to pass a special resolution. However themeeting may be called in a shorter than the required time ifit is agreed by a majority of the members having the right toattend and vote at the meeting whose voting right togethermakes up not less than 95% of the total voting rights of thecompany. However, it is indeed an encouraging practice if
ionger notices can be issued as this will give ample time for the shareholders to examine and justify the resolutions before coming to the meeting. The research finds that all companies met the above practices. The longest notice recorded for special resolutions is 39 days while for ordinary resolutions is 46 days.
3) Frequency It is not advisable for the company to conduct an EGMmore than once in an accounting year and/or conduct EGMsless than 6 months after the AGM. Valid reasons should beexplained to the shareholders if the company is practicingthis as although it will expedite the important decision,conducting more general meetings in a year will result in theadministration cost increasing unnecessarily. Paymentshould be made for rental of convention rooms in hotels,beverages, postages, while the time, energy and effort of the
staff can be diverted to more important activities. Our research finds that 12 companies conducted EGMs more than once in the period under review. None (0) of the companies disclosed reasons for having EGMs twice in a year. Further examination also revealed that seven (7) companies conducted the second EGM less than six (6) months from the first EGMs. It is a question on the ability of the company to strategize the important decision making for the company.
4) Place of Meetings When the company conducts an EGM, it is highlyrecommended that the meeting be conducted at the registeredoffice. Apart from its ambience, this can save a lot of cost ifit is conducted in the third party premises such as hotels andconvention rooms. Other important factors such as theaccessibility, the size of the hall that should be large enoughto accommodate the expected number of attendees, easyparking, near the public transport facilities and also notforgetting easy accessibility for the disabled shareholdersshould be taken into account. The researchers find that 13companies conducted their EGMs at premises other thantheir registered offices. Nevertheless, with the revolution ofinformation and communication technologies (ICTs), thecompany is recommended to have a meeting of its memberswithin the country at more than one venue or provide a livetelecast using any technology that allows all members toparticipate.
5) Time of Meetings The company also should conduct the EGM at theappropriate time although what is appropriate may besubjective to different people. The most important aspectabout time of meeting is the company provides adequatetime for shareholders to come to the place of the meeting.
The meeting can start anywhere between 9.30 a.m. to 3.30 p.m. Our research finds that a majority of the companies conducted EGMs in the above stipulated time while only one company had its meeting at 4.30 pm. This company intended to pass only one resolution.
6) Directors and shareholders’ attendance It is good practice for a company to disclose thedirectors’ attendance and level of shareholders attendance atEGM. This information is crucial as the commitment of thedirectors to spend time and answer the queries from theshareholders can be evaluated through their attendance. Forwhat purpose is of having directors if these people keep ongiving excuses and abstain from facing the shareholders andare absent from the company’s important activities withoutany substantial reasons. For the shareholders attendance, theinformation will highlight the level of shareholdersparticipation in jointly making important decisions for thecompany with the management. Higher number ofshareholders participation indicates the importance of theagenda to be decided on the meeting. The research finds thatnone (0) of the companies surveyed disclosed the directors’ attendance and level of shareholders’ attendance at EGMs.
7) Voting results The Company also needs to disclose the level of votingboth by shareholders and proxies on the resolution passed inthe EGM. Again, with this information, the level of supportby the shareholders can be determined. Higher percentage ofvoting shows that the management received very goodsupport from the shareholders in any move taken by thecompany while a lower percentage exhibist the other wayaround. The research finds that none (0) of the companiessurveyed disclosed the level of the shareholders’ voting atthe EGMs
8) Minutes of meetings In terms of minutes, the company needs to disclose theinformation or even the extract minutes of the EGMs eitherin the Annual Report, Bursa Malaysia’s Website orCompany’s website. This practice however is not normallywelcomed by many companies as their regular practice isonly providing a simple statement stating that all theresolutions proposed in the previous EGMs at that particulardate were passed. In term of disclosure, only one (1)company disclosed its extract minutes of EGMs in thecompany’s website other than the post EGM announcementsin the Bursa Securities website.
CONCLUSIONS
An AGM is arguably one the most important governance mechanism because it acts as the last line of defense for the shareholders, especially for minorities from being abused by others stakeholders of the company. However, it is also considered controversial because even though it can be used to protect the minority shareholders, yet this group is still helpless if all the other parties are on the opposite direction against the minority shareholders. The main focus of this paper is to explore the requirements on general meetings by the global best practices. Why do the global best practices matter for the company? Due to its significant importance placed by the government to encourage PLCs to expand their businesses and activities globally, coupled with saturated domestic market, more pressure should be exerted for the company to comply with the international standard of practices. There are many sources of international good practices that can be adopted by the company particularly in conducting the general meetings.
Importance of AGMs.The shareholders perception of just following what is right and proposed by directors during the general meeting, either at AGMs or atAGMs must be changed. Read between the lines, and consider the impact not only in the short but also in the long-term. It is good for the relevant authorities to come out with good governance practices on the general meetings so that it can be a lifeline for the shareholders to understand their right and be a benchmark for the companies whether they are actually exercising good governance or not.
Bibliography:
1. 2010 International Conference on Business and Economics
Research
BOOK
2. Commercial Law
Including Company Law
And Industrial Law
Edited and Revised by
Prof. Sakti Mukherjee