AGM season is fast approaching – being well prepared will pay dividends
In the run up to Christmas, it feels like AGM season is a long way away. Here Ross Hawley relays the voice of the IR Society policy committee by providing useful advice for those wishing to get ahead of the calendar.
HO ho ho...’tis the [AGM] season to be jolly.... OK, so even this close to Christmas, thinking of the AGM season as being ‘festive’ is clearly a step too far, but there are some valid parallels in terms of the benefits of advanced planning and preparation in order to avoid growing panic or tears on the day itself.
Just as Christmas present lists seem to be written as soon as schools go back, Christmas puddings made in October and Christmas party season kicks off in late November, so should your AGM planning checklist already be well underway. When the IR Society policy committee were discussing what might be done to get ahead of the game in terms of AGM 2019 preparation, the thoughts focused on managing three key interest groups: plc board; major shareholders, including index funds; and proxy advisers.
Engagement with each well in advance of the AGM will pay dividends (pun sort of intended) in terms of reducing the risk of last minute surprises in the run up to the AGM itself.
All IROs know that good communication channels with their company secretary and with the chairman/SID are key. In the context of the AGM, being aware of any potential changes in terms of governance structure, remuneration proposals or unusual resolutions as early as possible is crucial. Similarly, potentially punchy decisions such as on share pre-emption limits – a ‘red line’ for some large shareholders – should be factored into the planning process.
It is of course a two-way street – feeding back to the board what have been the issues in the market or with peers which have caused disquiet is an equally important task for the IRO, often in conjunction with the company secretary. Remuneration is perhaps the most likely of these to occur as a sensitive topic, and the media are always looking for a new target. So, having got a sense as to whether there are particular topics which need careful handling or not, the preparation list is probably best focused on how to effectively reach out to some core stakeholders, and when to do this.
Any IRO who was at the IR Society conference in 2017 will have heard Sacha Sadan from L&G talk about their approach to corporate engagement – in short ‘please do it early and out of the AGM season’ where they are overloaded. A similar message comes from the other index funds – so put them at the top of the list for a letter or email and phone call well before Christmas (and in truth ideally in the autumn) to see if they would like to have a call or meeting to cover off any issues – whether ones the company wishes to raise, or that they might have themselves. If they would like a governance meeting with the chairman or SID, plan for that early and get it into the NED diary.
Just as with the index funds, many large fund managers have hundreds or thousands of AGM voting forms to complete during the AGM season, and so early engagement where there are issues to be discussed is very important. As mentioned earlier, certain investment groups have well publicised ‘red lines’ which they have indicated they will vote against if crossed. Know which portfolio managers like to be consulted directly and which prefer to leave it to their governance team – and who actually presses the voting button. Most fund managers will not feel the need for a governance meeting every year but would like to be offered one – and if an issue does crop up at the last minute, having a track record of offering engagement shows an important degree of openness.
Much is written and talked about the challenges of engagement with proxy advisers, including by the policy committee in Informed a few years ago. Relationships and experiences vary from company to company, but it is without doubt sensible to make sure you know who is going to be designated by, say, ISS or Glass Lewis to cover your company – and also when in their planning timetable would it be sensible to reach out to them in order to have an educated conversation. At Rolls-Royce, we worked hard to ensure they felt well looked after by the CoSec and remuneration teams on technical points, and that together with CoSec – with IR included – we could have sensible conversations about any broader issues they might have. Making sure we understood when their reports were likely to be ready in draft; understanding the issuer data report process; and how to gently challenge any perceived misunderstandings all helped to smooth the process. Knowing which proxy advisers are taken most note of or mandated by your core shareholders is also a very useful guide as to where the extra effort should be spent – while at the same time making sure engagement with each has been factored in to the planning.
After the annual report is published
Although annual reports are often published while roadshows are still in full flow, this is an important time period for AGM preparation, not just in terms of getting the proxy process underway. A letter from the chair of remuneration to shareholders who had been consulted with earlier in the year, highlighting where their views had been followed or reasons why not, can go a long way to bringing key votes onside, or at least abstaining in what might be a sensitive situation.
An IRO also can play a major role in working with the company’s proxy agent to help track down slow or uncertain voting. This is very similar to chasing up analysts who have been slower than ideal on providing estimates on consensus, a combination of tact, politeness and occasionally pleading may be in order!! Back to my poor Christmas analogy: every family has stories of Christmas going awry despite the best of intentions and planning. And so it will be with AGMs, but advanced planning can help mitigate or diffuse situations or post-event inquests.
So, have a happy Christmas break, and remember to look at that AGM action list while the turkey is resting and the sprouts coming up to boil.
Ross Hawley is SVP of IR at ControurGlobal and chair of the IR Society’s education committee and deputy chair of the policy committee.
Published 8 January, 2019