Companies urged to adopt non-Dec year-ends

Singapore

ANNUAL general meeting season is here again, along with investor gripes that too many AGMs are held simultaneously towards the end of April.

To avoid the situation, some observers here have suggested listed companies consider changing their financial year-ends to a non-December date. This could result in cheaper audit fees and better value-for-money audits, they say.

However, the process could be more troublesome at larger companies. Investors will also find it harder to compare companies with different calendar year-ends with their industry peers.

In a letter to The Business Times last week, private investor Mano Sabnani said AGMs are still the most important means for retail investors to get a feel of how well their company is doing.

"Bunching of AGMs in late April denies them the opportunity to update themselves on their stock investments. It is a gross injustice," he said.

Joyce Koh, executive director of the Singapore Institute of Directors (SID), said the clustering of these shareholder meetings in April was not desirable.

One practical solution is for companies to have different financial year-ends such that AGMs can be spread throughout the year, she said.

"There are good commercial reasons for listed companies to do this too . . . For example, the fees payable to the external auditors could be lower, since the audit will now be done outside the greatest peak period," Ms Koh said.

"Even the booking of the hotel or conference rooms for the AGM should be able to be done at lower rates, with less competition for sites," she added.

Mak Yuen Teen, associate professor at the National University of Singapore Business School, also suggested that companies avoid having a December financial year-end.

He said that during his time on the audit committee of the National Kidney Foundation years ago, the charity changed its year-end from December to June.

This was "to avoid the audit crunch and also to pre-empt increases in audit fees". "The auditors were proposing to increase fees because of the peak period, and we moved the year-end to avoid it," he said.

Prof Mak added that changing the year-end would not be too difficult for smaller companies.

"Avoiding December year-ends can also allow small and medium-sized enterprises (SMEs) access to better audits, because in December, all the best partners are busy with the biggest clients," he said.

"For larger companies with many subsidiaries, this is more complicated because you generally also want to align the year-ends of all your subsidiaries."

But to avoid the AGM crunch, larger companies - notably Straits Times Index (STI) companies with many shareholders - can take the lead and hold their AGMs early in April, Prof Mak said.

Most listed companies in Singapore have December year-ends. There is usually a rush to hold shareholder meetings at the end of April because there is a Singapore Exchange (SGX) deadline for these meetings to be held within four months of the end of the financial year.

In a recent study on shareholder meetings, Prof Mak found a severe bunching problem at end-April. On April 28, 2014, for instance, 51 issuers held their AGMs between 9am and 12 noon. "In fact, 60 per cent of all 2014 AGMs in Singapore were held in April, and 76 per cent of all April AGMs were held in the last five business days of that month. These five days accounted for 46 per cent of all AGMs held in 2014," he said.

The bunching of AGMs is a serious issue for retail investors because they do not have the avenues of private meetings and investor presentations that institutional investors have, Prof Mak said.

In his letter, Mr Sabnani also suggested that SGX create a timetable in which at most five AGMs would be allowed to be held simultaneously in a two-hour slot.

But Prof Mak noted that there were problems with these AGM quotas. "How do you decide? First come, first served? Some companies may also need more time to complete their audit than others. And we also want dates when directors can attend," he said.

On AGMs, other issues highlighted by investor advocates revolve around shareholder engagement.

In a previous interview with BT, David Gerald, chief executive of the Securities Investors Association of Singapore, said some small and mid-cap companies can communicate better with investors.

"They say to the crowd . . . 'this is my annual report, it's all in there, I've already said it. So if you ask me questions, I'll just repeat what is in there'," he said.

Mr Sabnani said companies should provide enough time for shareholders to ask questions and get answers.

Ms Koh said SID hopes directors will make an effort to make themselves available to answer questions from shareholders even outside the official question-and-answer time.

"Directors should set aside time to mingle with shareholders before or after the AGM and hear out their concerns," she said.

However, she urged investors to send in their questions to the listed firms' investor relations contacts beforehand so that the company can prepare in advance. "Some questions may also be matters of fact, for which written answers distributed at the meeting may sometimes be more effective and productive," she said.

Another issue that corporate governance advocates cite is how some companies seem to deliberately make it difficult for shareholders to attend their AGMs by holding them in far-flung locations. On this, SID's Ms Koh said there should be a justifiable reason for a company to do so.

"For example, if the AGM is held at its operating premises, the ambience of the company and meeting could be better than in a hotel room," she said.

"In addition, if shareholders are given the opportunity to tour the area, speak to the senior executives and gain first-hand insight into the business operations, this could be mutually beneficial."

If there are enough shareholders, listed companies should consider providing transport to and from an MRT station or transport node, she said.

"At the end of the day, SID is of the view that the directors should organise the AGM so as to optimise the process of shareholder engagement. After all, it is usually only once a year that they get to meet their shareholders."