PRINCIPLE 16 of the Singapore Code of Corporate Governance states: "Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company." Guideline 16.1 adds: "Shareholders should have the opportunity to participate effectively in and to vote at general meetings of shareholders."
In our inaugural report on shareholder meetings released earlier this year, we confirmed the well-known phenomenon of clustering of annual general meetings (AGMs) in Singapore, particularly around the last five business days of April. We found that 76 per cent of all April AGMs in 2014 and 46 per cent of all AGMs that year were held during that period. This means shareholders who wish to attend multiple AGMs in Singapore are often unable to do so, as their dates clash, making the above principle and guideline in the Code ring rather hollow.
In fact, the clustering of AGMs has gotten worse in recent years, based on new data on past AGMs we have collected. In 2010, 70 per cent of all April AGMs were held in the last five business days of that month. This increased to around 75 per cent in 2011 and has remained above 75 per cent since. Similar trends can be observed for the other two busy AGM months of July and October. AGMs held in the last five business days of July increased from around 70 per cent in 2010 to more than 80 per cent in 2014, while it was around 63 per cent for October AGMs in 2010 increasing to more than 75 per cent in 2014.
We found some issuers that held their AGMs during the peak period year after year. Based on a sample of 527 issuers which had at least three AGMs during the period from 2010 to 2014 - excluding issuers which had undergone reverse takeovers, had significant changes in business or management, had delisted, changed their year-ends or delayed their AGMs - we found that 174 of the 339 issuers with April AGMs, or 51 per cent, always held their AGMs during the last five business days of April.
On the positive side, we found 44 issuers (or about 9 per cent in this group) that did not hold a single AGM during the peak period despite holding their AGMs during the peak months.
Some well-known names that have consistently avoided holding AGMs during the peak April period include CapitaLand Mall Trust, CapitaLand Retail China Trust, Great Eastern Holdings, Keppel Corporation, Keppel Reit, M1, NOL, and Sembcorp Marine. Other notable names that had July or October AGMs and consistently avoided the peak period include The Hour Glass, Mapletree Commercial Trust, Mapletree Industrial Trust and SIA Engineering.
There are some issuers that have recently moved away from the peak period for at least the two most recent years. These include BreadTalk, CapitaLand Commercial Trust and Raffles Medical Group. There are others that have moved to the peak period or to the fringes of the peak period.
Clustering is unlikely to go away, given factors such as clustering of financial year-ends, time required to complete the audit, the four-month deadline to hold the AGM and the demand by institutional investors for longer notice period for AGMs. In fact, it may get worse.
One forthcoming development that may make clustering worse is the inclusion of the "key audit matters" (KAM) section in the audit report, which may cover financial statement items that are most susceptible to misstatements, major transactions that require extensive auditing work, and areas that depend on management estimates. This new requirement becomes effective for audits of financial statements for periods ending on or after Dec 15, 2016 for Singapore listed companies with Singapore auditors.
The inclusion of the KAM section is aimed at boosting transparency for investors and other stakeholders and should be welcomed by shareholders. However, it may increase the time required for the preparation of the audit report, including more time spent by issuers and their auditors discussing matters that are to be included in the KAM section. This may cause issuers to push their AGMs even closer to the end of the four-month deadline and therefore aggravate the clustering problem. The new audit report will start appearing in accounts tabled at AGMs in 2017 and it would be interesting to see if clustering will indeed get worse then.
Issuers that are serious about encouraging shareholder participation should look at what steps they can take if they are going to continue to hold their AGMs during the peak period.
In our earlier report, we made some suggestions, such as providing audiocasts or webcasts (that shareholders can access during or after meetings) and providing detailed minutes of meetings or summary of key points from those meetings. This will at least help shareholders to be informed of what transpired at the AGMs if they are unable to attend.
Perhaps issuers that hold their AGMs during the peak period should be urged or even required to also hold a separate town hall meeting with the board and management present for shareholders outside of the peak period. This may spur more issuers to seriously consider shifting the AGM from the peak period in order to avoid incurring additional costs. Such meetings are not a substitute for statutory AGMs but they can go some way towards allowing shareholders who do not have the benefit of private meetings with issuers to engage with the board and management.
Beyond addressing the issue of clustering, it is important for issuers, shareholders and other stakeholders to work towards improving the quality of AGMs, and by that, we do not mean the quality of the food or the door gifts. Based on personal experiences from AGMs we have attended, we feel that chairmen of meetings (who are usually the board chairmen) should be more pro-active in providing opportunities for other directors to contribute to the proceedings at AGMs. After all, Guideline 16.3 of the Code recommends that the chairmen of the different board committees should be present and available to address shareholders' queries at general meetings.
We would also like to see the other part of Guideline 16.3 being really put into practice - that the external auditors should be present to address shareholders' queries about the conduct of the audit and the preparation and content of the auditors' report.
Currently, external auditors are present but are rarely asked or given the opportunity to provide any useful insight into the audit. With the introduction of the KAM section in the audit report, there may be a few things for the shareholders and the auditors to talk about at general meetings. Hopefully, shareholders and auditors will rise to the occasion.
Finally, we hope that when the multiple proxies regime come into effect in the first quarter of 2016, we will see more institutional investors attending AGMs and asking questions. After all, much of the impetus for the introduction of this regime was the view expressed by institutional investors that the "two proxy" rule disenfranchises them and hinder their participation in AGMs. With the barrier to their participation to be removed, we should be able to look forward to more active participation by institutional investors in AGMs.
- Mak Yuen Teen is an associate professor at the NUS Business School where he teaches corporate governance and ethics.
- Chew Yi Hong is an active investor and has participated in a number of research projects in corporate governance in Singapore and the region.