The Conference Board

 


Press Release / News

Corporate Annual Meetings Undergoing Change And Tough Scrutiny But Can Be Powerful Corporate Tools

Jan. 4, 2005

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Annual meetings are under attack in both the United States and Europe but are likely to survive by becoming more relevant and in step with a changing governance and business environment, according to a report released today by The Conference Board.

The report is based on the second Corporate/Investor Summit held in London in May. The summit was initiated by The Conference Board’s Global Corporate Governance Research Center and included major corporations and large investors from the U.S., U.K., and Germany.

“There is considerable debate surrounding annual shareholder meetings on both sides of the Atlantic,” says the report. “While new governance initiatives push toward airing certain issues at annual meetings, both companies and investors have expressed concerns about their goals, format and effectiveness.”

Some critics charge that attendance at annual meetings attracts “gadflies” rather than major institutional investors and that all the significant communication with investors takes place behind the scenes and well before formal meetings. Others say that with the growing globalization of shareholders (some multinationals have several hundred thousand shareholders throughout the world), annual meetings should be conducted online.

The Case For The Annual Meeting

But Carolyn Brancato, Director of The Conference Board's Global Corporate Governance Research Center, describes the annual meeting as “the one occasion when general shareholders can meet with the board of directors face to face, question them about company performance and policy, debate any outstanding issues, and then vote on the motions put before them.”

Investors and executives point out that institutional investors have a major edge over other shareholders, since they have preferential access to board members at almost any time they wish. So for them, most of what takes place at the annual meeting is often redundant and their attendance is viewed as unnecessary. It’s also charged that very little meaningful discussion takes place at many annual meetings, especially when they are dominated by single-issue activists. Some critics also question the value of open voting since institutional investors already have decided most of the issues with the company beforehand.

Enron And Other Scandals Drive Change

The content and purpose of the annual meeting was originally prescribed by company law in most jurisdictions. Very little changed until regulators and stock exchanges on both sides of the Atlantic imposed new rules and requirements in the wake of a growing number of financial scandals and spectacular corporate failures over the past five years.

Corporate governance reform has forced the pace of change and imposed a much greater burden of compliance and disclosure on a company than ever before. This has transformed expectations for the annual meeting from fulfilling a relatively simple and straightforward legal requirement into a much more complex process, covering a wide variety of issues.

“It is not surprising that most companies are unhappy about having to lash onto their agendas a raft of substantial new elements that they believe do not necessarily meet the needs of shareholders or companies,” says Brancato. “As an entity, the annual meeting is intended to serve many masters at the same time. There is growing concern that it is not serving any of these parties as well as it could be.”

A Widespread Call For Change

The Conference Board study finds a general belief that annual general meetings need to be changed. But a key question is how much change can be implemented, since there are only a limited number of options for change within the constraints of legal requirements and evolving expectations among investors and corporations.

Among the major suggestions for change presented by participants at the summit: