Meeting success head-on
All successful annual general meetings resemble each other – and each botched one is a disaster in its own way. In an investment climate marked by accelerated regulatory change along with investor suspicion and activism, the minefield of potential mishaps and calamities facing corporate secretaries is various and growing. Consequently, preparedness is critical to keeping the corporate family happy and the annual meeting flawless. The alternative is two hours of acute pain.
Each corporate secretary has unique responsibilities and faces a different situation – no single technique or tactic applies to all. But in the hope of providing some food for thought to a highly experienced group of practitioners, Corporate Secretary magazine offers some observations on what it takes to bring off a brilliant shareholder meeting.
Answering the proposal
On the proxy front, corporations can expect a repeat of the themes and issues that dominated last spring’s meetings.
‘I suspect next year’s proxy season will look a lot like this year’s,’ says Carol Bowie, director of corporate governance services at the Investor Responsibility Research Center (IRRC). ‘There will be continued focus on executive pay. Labor funds in particular will continue their attack on what they perceive to be egregious executive pay packages. There will also be proposals seeking to eliminate takeover defenses. Then I expect we’ll see a continuing increase in proposals targeted at board practices regarding independence.’
In 2003, according to Bowie, whose organization helps companies and institutional investors track governance trends, few proposals were aimed at board independence because many felt regulatory changes had taken care of the issue. However, this year saw an increase in such proposals – and Bowie sees the trend continuing. ‘Investors are keen to raise the bar,’ she says. ‘While having a majority of independent directors is good, many investors see it as a minimal goal.’
Bowie’s advice? Be responsive to shareholders that submit proposals. ‘If companies just ignore proposals, the issue won’t go away,’ she points out. ‘Most proponents’ primary objective is to engage the company. If the company is at all responsive, a mutually agreeable solution is much more likely to be found. Most companies have figured that out by this point.’
Indeed, Bowie notes a moderation of the once common knee-jerk reaction by companies receiving a shareholder proposal to immediately seek ways to counter it. ‘More companies are actually recommending in favor of shareholder proposals,’ she says. ‘That is an important development arising in the aftermath of corporate scandals. We’ll see if the trend continues. There are, however, definite signs companies and corporate secretaries have been more flexible in negotiating, and are getting more proposals withdrawn and agreeing to adopt requested policies either in negotiations or following a majority vote.’
Then, of course, there are times when management wants to firmly dig in its heels and recommend against proposals. ‘In that case, you need to prepare your arguments,’ says Bill MacKenzie, president of Toronto-based proxy advisory firm Fairvest. ‘Most companies take a pretty good swing at it but others simply flat out dismiss shareholder proposals as noise. That can result in bad press. You might get bad press anyway, but at least you have an argument going into it.’
The family circular
MacKenzie advocates leveraging the proxy circular as a disclosure tool to help preempt meeting questions and defuse undesirable shareholder proposals. When crafting the circular it’s a good exercise to forget you are a corporate secretary and think like a shareholder, he says. ‘Ask yourself, What would I want to know to intelligently vote?’ he suggests. ‘Then you can determine how the information can be enriched.’
One area where MacKenzie and many institutional investors would like to see more ‘enriched’ information is executive compensation disclosure. While the discussion of executive compensation in proxy circulars has come a long way in recent years, MacKenzie says there is still plenty of boilerplate around the topic. In particular, he’d like to see a clear outline of how pay is determined. ‘There’s a real reluctance to disclose the facts behind the mystery of executive compensation,’ he says. ‘It doesn’t endear management to shareholders. It’s better to be as straightforward and detailed as possible.’
MacKenzie suggests companies expecting many compensation-related questions at their meeting should consider adding to the agenda a report from the compensation committee. ‘If nothing else, some of the heat will go to the chair of the compensation committee instead of the chairman or CEO,’ he notes.
When looking for a fresh take on their circular, corporate secretaries often turn to their proxy solicitor. ‘Many people take an off-the-shelf proxy circular and send it to us only to find out there are a lot of technical details in the language that could have come back to haunt them,’ says Wes Hall, president of Toronto’s Kingsdale Shareholder Services. ‘They don’t create it anticipating there will be problems with the vote. We, on the other hand, do.’
Hall points to examples of generic circulars that fail to establish a cutoff date for return of proxies. ‘Without a cutoff date, you can walk into a meeting – and companies have done this – believing all is well only to see a dissident declare it has 40 percent of the vote and is nominating different directors,’ he warns. ‘The solution to avoiding that situation is simply to establish a 48-hour cutoff date. That way, nothing can surprise you at the meeting. That’s the kind of hole we can fill in.’
The big day
Reg Babcock, president of Connecticut-based Corporate Governance Services, was ‘scared to death’ the first time he produced an annual meeting as a corporate secretary. ‘There you are in front of all the directors and officers and a room full of people and all you’re doing is asking yourself, What have I forgotten?’ he says. ‘Everything that can go wrong will be your fault and the reality will be quite public.’
Babcock says you can alleviate much of the uncertainty by working closely with your solicitor and transfer agent. ‘Don’t be afraid to turn up the heat,’ he suggests. ‘Get your money’s worth. For their part, the proxy firms are some of the great unrecognized and streetwise resources available to the corporate secretary. In either case, the best providers are the ones forthcoming with ideas.’
The meeting’s Q&A is usually its most nail-biting and interesting segment. Many Q&As are run to ensure the chairman can answer every conceivable question and appear to be in control of every aspect of the company. According to Babcock, however, this endeavor often produces results that fail to resonate. ‘Everyone knows he’s using a teleprompter, laptop or book with all the scripted answers,’ he points out. ‘A more effective strategy is having the chairman respond to those questions he can answer himself without turning to notes while also knowing who he can hand a question over to should the need arise. You get a much stronger overall presentation if it portrays not merely a strong chairman, but a strong organization led by a chairman who knows the expertise of his officers.’
Hank Barnette, former chairman of Bethlehem Steel (and a former corporate secretary) now with law firm Skadden Arps, offers a refinement of this technique. In the interests of conducting the meeting’s business with dispatch, Barnette advises deferring the responsible officer’s response until later, in private. Barnette underlines the need to have rules of conduct that permit the chairman to effectively preside over the meeting. ‘It is important to make those rules clear,’ on the reverse side of the agenda and at the meeting’s beginning, for example, he says. ‘If there are abuses of the rules, the chairman simply calls the person out of order and moves on. This helps set the tone of the meeting.’
Another tone-setting technique Barnette has found valuable is having the CEO and a few directors greet stockholders as they arrive at the meeting. ‘It’s not always practical, but mixing with investors and shaking their hands adds an informality to the event,’ he notes.
Yet forces are working to make meetings more formal in the future. ‘In these days of severe terrorist threats, it seems a careful plan needs to be laid out to respond to emergencies,’ says Barnette, laying out a two-pronged strategy. ‘First, just like airport security, you must ensure the people attending the meeting are those who should be there. Then, recognizing that things can still happen, you need a plan to reorganize after a disrupted meeting.’
Ultimately, no detail is too small to deliberate ahead of time. In the plain-spoken words of Sam Dabbs, assistant corporate secretary at energy utility Southern Company: ‘An annual meeting presents a grand opportunity to do something wrong. So you have to put a lot of effort into it.’
by Jeff Cossett