Friday, 23 November 2012

AGM season in full swing...and I couldn't care less

Just before the Annual General Meeting season started for Australian companies I did a series of posts on how voting at AGMs was the one time that shareholders had to influence the way in which a company was run.  I also pointed out that retail shareholders do not vote and the companies therefore made decisions which typically favoured institutions.

I decided that one mini-crusade that I would go on would be to inform retail shareholders how important their vote was and how they should vote to protect their shareholding.  For this first AGM season, therefore I committed to doing my small part and actually voting in every AGM in which I was entitled to and I discovered something - I just did not have a good enough understanding of what I was voting on to care.

Voting on remuneration reports

This is the one area that people typically get worked up about - executives get paid too much money and this is a chance to vote that remuneration report down.  However there are several problems
  1. The remuneration reports take a fair bit of effort to go through properly
    • What you should be interested in is not only the absolute levels of incentives but also how these incentives are structured and how the vesting works for each of these
    • Most retail investors do not have the knowledge or know how to go through these reports
    • Even if you do have the knowledge and know how they take a fair bit of effort and if you try and do it for any more than about 5 stocks you typically get bored out of your brain
  2. Typically remuneration report voting is linked to how well the shares have performed NOT how the remuneration is structured
    • You see this all the time - a company that is performing well can pay their senior management almost anything and incentivize them terribly and shareholders will still vote for the report
    • Conversely  shareholders will vote against a report which compensates managers in an appropriate way if the shares are performing badly
    • This doesn't make sense but it is the only real option that shareholders often have to vent their frustration at the company
Voting for directors

This is the bit I got most stuck on (and I cared the least about).  I simply did not know WHO these directors were, whether they were good or bad, what sort of decisions they voted on and how informed they were. 

The strange thing about investing in companies is that you are constantly exposed to the management team - the CEO, CFO and other senior personnel through conference calls, news reports etc but as a shareholder you get no say over the management team.  You get to pick the guys who pick the management team however you know nothing about these people and how active they are on the board and how much the actually contribute.

I found myself voting for board members if I liked the senior executives and against them if I didn't.  There has to be a better way.  Companies should start providing information on what these board members are actually adding.

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