'AGMs are an expensive waste of time and money' - so say the majority of senior executives and people in the investing community. Institutional shareholders don't bother to attend and it is protest groups and individuals with an axe to grind who take the floor.
What use is the annual general meeting? As presently constituted, not a lot, says Paul Myners, chairman of Gartmore investment fund managers. This is not just a personal view. Myners is chairman of a working group which recently reported on practical ways for improving the relationship between UK industry and institutional shareholders. His team took submissions from senior executives (chairmen, CEOs, finance directors) at over 50 listed companies and from a further 70 senior folk in the investing community. They were virtually unanimous, Myners says, in regarding the AGM in its present form as 'an expensive waste of time and money'.
'The AGM is an interesting phenomenon,' he continues. 'There is a statutory requirement to have an annual meeting, and yet it is hard to find anyone who thinks it achieves much. Most company chairmen approach the event with some trepidation and considerable preparation': some apparently go to the lengths of swotting up the contents of a briefing book containing the 200 most difficult questions that might come up.
But these difficult questions are rarely asked. 'The institutional shareholders don't attend, so private share-holders predominate - and those who do ask questions usually bring up concerns about the environment, or employee-related matters, or consumerist issues.' Myners does not deny the importance of such concerns but, he complains, the AGM is not the place to air them. Questions from private shareholders, in his experience, 'rarely focus on the important issues', by which he means issues relating to the strategy and financial management of the company. The AGM can 'never be a useful forum when major shareholders do not attend'.
But why don't they? One reason, of course, is that the major institutional shareholders, like brokers' analysts but unlike private shareholders, have access to the company at times other than the AGM. Increasingly they have their one-to-one meetings with the company - the opportunity to look the chief executive and key directors straight in the eye and engage in frank discussion of all aspects of company performance, good and bad. Well, that's the theory: in practice, according to the Myners report, one-to-one meetings are also often less than perfect exchanges of information and reasoned criticism, not least because institutional representatives do not always prepare as thoroughly as they might.
Be that as it may, the other obvious reason that major shareholders don't attend is because the average AGM is usually no more than a boring ritual: a rapid run-through of the notice of meeting, including the announcement of the dividend (which shareholders could read for themselves in the annual report) and the election and re-election of board directors, usually nodded through if people attending haven't nodded off.
There are of course AGMs which are occasions of high drama, such as the recent Lonrho meeting, when Tiny Rowland made his impassioned plea to continue as chairman. There are also AGMs when the really stinging key questions are asked. Consider, for example, last year's meeting of Dawson International, the once-thriving, now flailing Scottish knitwear company. The questions put to chairman Sir Ronald Miller came from Sir Alan Smith, the war-time fighter pilot who put together Dawson and could be summed up, as the Financial Times put it, as asking in effect, 'What have you done to the healthy company I handed over to you in 1982?' Or cast your mind back to the meeting when enraged shareholders demanded of chairman Gerald Ratner why he had insulted the group's customers by comparing a Ratners' gold earring (unfavourably) to a prawn sandwich - unfavourably, you will recall, because although identical in price, the sandwich would last longer. In such cases the answers are rather less satisfying than the questions, perhaps, but at least the AGM is serving the purpose of putting a well-paid chairman on the spot. (Both have since resigned.) But much more common than such confrontations are the times when the meeting is effectively hijacked by interest groups or aggrieved individuals; and even if the meeting were crammed with shareholders bristling with astute and pertinent questions, these would never get asked, because proceedings are taken over by individuals who have bought shares only for the purpose of taking the floor at the AGM.
The hijackers tend to come from two camps. On the one side, you have protest groups - against the use of animals for testing cosmetics or the effects of smoking, against the sale of arms to developing countries, against the abuse of the environment and the despoliation of areas of ecological uniqueness. From the point of view of the companies involved, there are ways of minimising the disruption. Least imaginative but nevertheless effective is the tactic adopted by Alvis recently, which simply closed its AGM to the press so that any protests against the company's sale of armaments that might have accompanied the formal proceedings simply went unreported.
More constructive, perhaps, was the method adopted by mining group RTZ, whose shareholder meetings in the late 1970s and early 1980s were a byword for mayhem in the shape of environmental protesters. RTZ has the distinction of its very own protest group - Partizans (protesters against RTZ and its subsidiaries) - whose interventions at the AGM eventually began to pall with the other shareholders. The company's approach was to anticipate the questions likely to be posed and to provide answers in the form of fact sheets. According to John Hughes, head of corporate affairs, 'This approach actually rebounded on Partizans. Over the last five years, even their questions have become more specific.' Then there is the second group of hijackers, the aggrieved customer turned shareholder. Despite the fact that members of this group will include increasingly frail old people, it is probably more difficult to handle. This sort of hijacker is most commonly found at the meetings of banks and insurance companies - institutions where a perceived mistake can actually ruin people's lives, touching as it does on that most emotional of areas, ie money. Year after year, the customer-shareholder who feels the bank has failed him/her turns up at the AGM to challenge the chairman in ever more quavering tones. An efficient customer complaints procedure may serve to keep dissatisfied customer-shareholders at bay; but once they have seized the microphone, it seems, there is no turning back.
'An expectation builds up that the side-issue is what the AGM is about,' remarks Mike Jones, head of corporate affairs at Sun Alliance, a company which provides the supreme instance of a customer grievance taking on a fully fledged life of its own. Eleven years ago, Nigel Watts, a Sun Alliance policy-holder and shareholder, complained about the company's refusal to pay out a claim following his brother-in-law's death. His campaign for payment included the publication of pamphlets by Count Nikolai Tolstoy alleging that former Sun Alliance chairman Lord Aldington had been guilty of war crimes in Yugoslavia during the second world war. Because Aldington had been chairman at the time of the decision relating to the insurance claim, the company agreed to lend him £530,000 for the costs of a libel action against Tolstoy and Watts. In the event, Aldington won £1.5 million in damages, but the sum has not yet been paid; and the likelihood of a cheque coming through the post seems remote. The loan therefore remains outstanding, giving Watts a new topic for complaint at AGMs.
Meanwhile, what of the recommendations of the Myners committee? 'We believe the AGM is too important to leave as it is,' declares the report; and indeed, members of the committee did contemplate proposing a change in the current legislation stipulating an annual meeting. 'We considered the question - Why hold an AGM every year?' says Hugh Collum, chief financial officer for pharmaceuticals group SmithKline Beecham and a member of the committee. 'The basis for a new arrangement could be, say, that if 10% of shareholders or more wanted one, then it would go ahead. Otherwise, why not have AGMs on a regular three-year basis?' The thinking was that shareholders, particularly institutional shareholders, might value the current system more highly and make sure they take advantage of it.
Instead, however, the committee decided to keep the statutory backing for the AGM but to recommend a change in format - a change already adopted by the more forward-looking companies - so that major investors see the point in attending. Basically, the committee agreed, the AGM should be used as a major opportunity of bring shareholders up to date on the business. 'It all comes down to confidence in communication,' says Myners. The AGM should form part of a programme of communication including operational updates in the second quarter (normally at the AGM) and also in the fourth quarter. These should be less detailed than the interim and final results announcements and have fewer, if any, figures. In addition, operational managers should make presentations and be available to answer questions from shareholders outside the formal meeting, the committee suggests.
On the question of questions, as it were, shareholders should be encouraged to submit these in advance. Questions 'specific to an individual, and not of general interest', should be referred to the relevant director for a response after the meeting, with the answers subsequently made available to any interested shareholder.
'If the company makes the effort, it does raise the level of debate,' insists Collum. The SmithKline Beecham AGM, for example, includes presentations from the chairman and the chief executive as well as a video on a particular aspect of the business. 'And the meeting doesn't last just 10 minutes but a couple of hours,' Collum adds. The result of this effort to inform and to interest is that SmithKline Beecham meetings now attract around 400 or 500 people.
Not everybody is convinced, though. Comments Jones of Sun Alliance: 'In terms of the sheer practicality of running the meeting, the operational presentations won't stop the single-issue people.' Moreover, he asks, would the small shareholders understand the detailed presentations? And if presentations were geared to the small shareholder, would they be of interest to the big shareholders? Nor, despite their contribution to Myners recommendations, are all institutional investors won over. Those approached by Management Today saw no reason for change: they do vote, they point out, but by proxy, and see little reason for attending.
Others, not least the smaller private shareholders themselves, see the AGM as their day. Certainly, for some it is little more than an outing with a glass or two of something alcoholic thrown in for good measure. But for others, the very tone of the event gives an indication of how management is doing. If business is going well, and the meetings are short then there is more time for discussion with the directors afterwards. If the business is doing badly, the AGM remains an opportunity for shareholders to ask why. Finally, suggests one observer, with all its shortcomings, the AGM does provide scope for public embarrassment. As such,it acts as a spur to the chairman to put things to rights before the crunch comes.