The annual interrogation
Annual meetings are a vital part of a company's calendar but they can lead to some awkward questions for the board
John Farmer is a real person and he is the scourge of company chairmen everywhere. Farmer is a private shareholder who owns shares in most of the UK’s leading companies. When it comes to annual meeting time, he is likely to be first to his feet when the chairman calls for questions.
His favourite question is to query why the chief executive is paid so much, when the share price has fallen or lagged the market.
For years now, Farmer has been seizing his moment in the sun at these events which all companies are obliged to hold. He was attacking Next’s ‘excessively lavish’ directors’ bonuses back in 2003, and as recently as April popped up at Centrica’s annual meeting to criticise the chief executive’s £3 million salary when shareholder returns over the previous seven years had been a ‘paltry’ 20 per cent.
Company secretaries, chairmen and directors of communications are all familiar with him. Even the other shareholders roll their eyes when he takes the microphone.
But Farmer is just exerting his legal right; shareholders are legally entitled to attend annual meetings. For private shareholders, in particular, it may be the one time that they have an opportunity to sit in the same room as senior representatives from the company in which they have invested.
But Farmer is a pussy cat in comparison to some of the other attendees at annual meetings. Increasingly, these are professional campaigners and protestors who will use tactics more commonly seen in political protests than in the staid setting of an annual meeting. Purchasing just one share provides the ticket.
For the past two years, G4S, the security firm, has seen its annual meetings descend into chaos, despite a heavy security presence. Last year, the company’s supply of security and screening equipment to the Israeli security services dominated its meeting during which only a small number of the questions from the floor focused on its financial performance.
BAE Systems has had similar protests for years, while miners and oil companies routinely face protests from environmental groups. In 2009, cabin crew unions brought cages of live lemmings to British Airways’ annual meeting to highlight their campaign against job cuts and pay freezes. People still talk about Cedric the Pig, the 20 stone pig who turned up at British Gas’s 1995 annual meeting in London’s Docklands as part of a protest against the pay of the then chief executive Cedric Brown, who earned five times as much as the Prime Minister.
At companies with a large number of retail shareholders, the annual meeting is a big deal – even if there is no controversy on the horizon. Most meetings start at 11 am – which allows retired shareholders to catch cheaper trains – but if you try to start the meeting earlier, there will be complaints.
Central London venues are preferred by shareholders, although if companies say they are going to ‘tour’ their annual meeting, you can be sure it is to try and deter people from coming.
The chairman has to think hard about what they say and how they manage the room
Booking a venue that is big enough and has access for disabled people happens at least a year in advance, while the more detailed planning gets underway three to four months in advance when the annual report and accounts are finalised.
Catherine May, the former director of corporate affairs at Centrica and at SABMiller, says you have to plan for people who do not really know what to expect – that means huge numbers of hosts to guide people to seats, lots of signage, slides that explain any speeches, deaf and dumb signing, people to jump up with microphones, something for shareholders to hold up to attract attention.
These days, a TV crew, lighting and sound teams are necessary – both for webcasts and as a way of keeping an accurate record. But one of the biggest factors of success at an annual meeting is the ability of the chairman to control the room, which could be holding 1,000 people for a large company. (In Germany and Holland, where retail shareholders are much more likely to attend, this number could be 5,000.)
‘The chairman has to think hard about what they say and how they manage the room. Roger Carr, then Centrica chairman, was superb at this. He used to hit a very measured tone to show that he was in charge of the meeting but on the side of the shareholders. He would address the meeting, then say Let’s hear from the company,’ May recalls.
Communications directors need to pre-brief and rehearse the chairman and chief executive, taking care in particular to cover any ‘current’ issues that are hot topics in the media. If anyone has been asking questions about sustainability, the supply chain, fair tax policy or pay during the year, then the AGM is the opportunity for people who care strongly to make their point.
‘The challenge with AGMs is that an individual with a particular gripe can stand up and say something explosive, without receiving much scrutiny about whether it is justified or not. The more colourful the language, the more likely it is to be reported,’ Giles Croot, director of communications and investor relations at Balfour Beatty, says.
Some companies are so concerned about the activities of certain groups that might target their meeting, that they use private investigators to monitor what they get up to, sometimes to the extent of infiltrating groups. Watching the social media activities of known campaigners is another way to prepare for disruption, as they typically put their escapades and stunts online.
Sometimes, protestors do actually get what they want. Back in 2006, protestors began singing and chaining themselves to chairs at the annual meeting for Reed Elsevier, the scientific publisher, over its ownership of a defence industry exhibition, where arms were sold. The business accounted for just one per cent of the company’s turnover, but one year later Sir Crispin Davies, the then chairman, bowed to pressure and said Reed would sell it by the end of the year.
The challenge with AGMs is that an individual with a particular gripe can stand up and say something explosive, without receiving much scrutiny about whether it is justified or not
Drax, the power station operator that burns both coal and compressed wood pellets to generate some eight per cent of the UK’s electricity, has been a target of protestors for the last decade. At its most recent annual meeting in the City of London, about two thirds of the 20 shareholders who attended were protestors. The crowd outside carried banners and home-made dinosaur puppets – their message was that Drax was a dinosaur.
Past attempts to disrupt Drax meetings have included a shareholder who came in wearing a Velcro suit, which he planned to rip off to reveal his bear costume – the message was that Drax was preventing bears from doing what they would naturally do in the woods. He was not successful. There is always a visible security presence at the company’s meetings and a close relationship with the City of London police.
Andrew Brown, director of communications at Drax, is wary of talking about some of the protestors’ stunts, but admits he is sometimes impressed by their creativity. ‘We don’t allow people to grandstand, they have to ask a question and then we try to respond in as much detail as we can. The sustainability of our operations is fundamental to the success of our business. We have nothing to hide and welcome any opportunity to correct the misinformation which exists about our sourcing of wood pellets.’
Afterwards all shareholders, including those there to protest, are encouraged to stay and talk further over a cup of tea and a biscuit. ‘They do come along and we are keen to engage. There’s a frank exchange of views but it is always done with respect,’ he says.
Usually the media presence at annual meetings can be minimal, despite the efforts of protestors to attract attention. Louise Shield, outgoing director of external communications at RSA Group, says: ‘If you are doing your investor relations and media relations job well, there’s no need for fund managers or media to be there as they get plenty of opportunities to talk to the company.’
But when there is something controversial in the offing – perhaps a looming defeat on executive pay – sometimes companies try to keep media out of annual meetings. Croot says: ‘I think it is a mistake, because they will only go away and buy a share which entitles them to come in anyway. Why make an enemy of them?’
Shield says that her company aims to be as open and transparent as possible when it comes to questions. Meetings are the one opportunity board members have to hear individual shareholders’ concerns, firsthand.
We don’t allow people to grandstand, they have to ask a question and then we try to respond in as much detail as we can
For RSA Group, which has been through some upheaval and received an unlooked-for takeover attempt from Swiss insurer Zurich last year, there were no critical questions from shareholders and praise for the progress the company had made, under relatively new chief executive Stephen Hester.
‘The board are happy to hear shareholders’ views and their feedback. It’s amazing how many positive views are given at the meeting,’ Shield says.
But what is the one thing that really engages or enrages shareholders? Of course it’s the food – particularly the lack of it.
Last month in Germany, police were called to the DaimlerChrysler annual meeting after a fight over free sausages turned ugly. The company served about 12,500 sausages to the 5,500 shareholders at the meeting for lunch, alongside bread rolls, wraps, potato soup and potato salad, followed by cake in the afternoon. But a female shareholder was unhappy that one man was taking more than his fair share. Chairman Winfred Bischoff concluded: ‘We either need more sausages or we get rid of them altogether.’
It’s a solution that most British companies came to a while back. Marks & Spencer infuriated its shareholders when it swapped a lavish buffet for a goody bag containing £6.59 worth of refreshments a few years ago.
These days, shareholders are lucky to get a biscuit and a cup of tea. ‘I don’t see why we should pay what is effectively a special dividend for shareholders who live within the M25,’ says one director of communications.
Others are more direct: ‘We don’t want to encourage them to linger.’