In Asia, boards typically meet shareholders just once a year at the AGM. But there are many benefits to a broader program of engagement
AT A GLANCE Infrequent contact Board benefits IR as the glue |
Here’s a quick question for you: which group of people does the board of directors serve? My guess is that the majority of readers would answer ‘the shareholders’. If so, ask yourself this: how often does your board of directors meet with the shareholders of your company, and is that considered sufficient?
Typically for a public company in Asia, the board will meet shareholders only once a year at the annual general meeting, perhaps twice a year if there is an extraordinary meeting. The tendency during a shareholder meeting is to inform investors what the company has done up to that point and let them know what the company wants to do next. It is all rather one-way. While shareholders have the right to raise questions or make comments, the people who do stand up at an Asian AGM are usually few and far between and, with certain notable exceptions, are often too shy to speak in public.
In addition, most shareholders, even local institutions, find it difficult to attend AGMs that are held during working hours, especially if they hold shares in several companies, necessitating a lot of Bloomberg-staring during the day. It is even more problematic in some Asian countries where management deliberately decides to hold a shareholders meeting at a branch office in the boondocks in order to ensure no one comes.
One should ask: is being a shareholder – the actual owner of a company – and only meeting its officers once a year an ideal situation? Does the board even know who its shareholders are? The situation is exacerbated when large shareholders reside in other regions. Most foreign institutional shareholders of Thai companies do not attend AGMs but instead ‘vote with their feet’, selling their shares when they don’t like a company’s plans. This is a missed opportunity to explain corporate strategy further or correct misunderstandings.
Supporting the board
Investors could be a great asset to the board. Professional investors may have gained broad business experience through companies they have owned. Some retail investors are millionaires with their own successful family businesses. Collating some of that experience could translate into a big advantage to the board and the company. Actually listening to shareholders might give a company an added advantage.
One activity directors rarely consider is to accompany the IR team to an investor conference, sit in on meetings and learn what investors ask. Inviting a team of directors is impractical but if, for instance, independent directors take it in turns at different conferences, it is possible. An independent director may not be able to answer typical investor questions so from the outset the investors need to know this is a fact-finding and observation mission.
Some directors in Thailand take time to chat with shareholders just before the AGM begins; others may wait until after the meeting. In Thailand this is valuable as many people are too self-conscious to stand up in front of hundreds of others but feel comfortable chatting informally after the meeting. These chats provide only brief snapshots, however. The shareholders that attend the AGM may have a broad range of opinions that cannot be absorbed in a short space of time.
Another way for directors to meet shareholders is to hold meetings at another time and place just for independent directors and, for instance, the first 100 shareholders who apply to attend. Following this, the independent directors could report to the board.
An interesting point here is that Thailand-registered companies listed in Singapore cannot hold AGMs in Singapore under Thai law – so they hold other meetings in Singapore with Singapore shareholders to hear their opinions. Unfortunately, Singapore shareholders that want to attend the AGM in Thailand cannot, as their names are not in the shareholder register. They do receive a voting form, so their vote counts, but they cannot attend the AGM.
The role of IR
For regular board reports, the IR department or IRO is empowered to meet investors regularly and act as a source of information regarding what investors are thinking. Some companies request that investor relations teams make a brief presentation during the board meeting in order to understand how shareholdings are moving, what the key questions being asked by investors are and what suggestions they are making. It makes sense sometimes for the CEO to present to the board what the IRO reports. (This will be more effective if the CEO has attended investor meetings regularly.)
The board may want digestible IR information regularly and may assign some directors to act as an IR committee of the board to gather information that is more varied, and synthesize it for presentation. The advantage of an IR committee is that it can also bring urgent issues to the board’s attention under the ‘any other business’ agenda item whenever needed. Other benefits of the IR committee include educating the board on investor perceptions and the valuation of the company. Moreover, the board can ask questions to be passed on to investors on strategic issues, like the direction in which the company is planning to move. For companies that have a large free float, this can be an advantage because it makes the defeat of a controversial motion at the AGM predictable, allowing for a better explanation to be formed.
How else can IR help the board stay engaged with investors? A regular report on the top investors will help directors see whether large shareholders have bought or sold. IR should report whether they have met any of these holders in the last six months. Also worth considering is stock performance over any period with an overlay of events to indicate why the stock is moving in whichever direction, stock price performance relative to peers, and a peer analysis.
IR committee members should receive emailed updates of what investors are saying about the company. While many small public companies will not consider the expense of perception studies, understanding investors is so important. Try conducting surveys at investor meetings. In Thailand, the stock exchange has Opportunity Day, a quarterly meeting for presenting financial results, open to all with an available room and live video on the web provided free by the exchange.
If the board wants to serve shareholders well, it at least has to know who those shareholders are, why they invested and why they might leave. The answers might be surprising.
This article appeared in the Spring 2016 issue of IR Magazine