The AGM conundrum

The Star 2/7/2005 Comment By Errol Oh

AT times, the gap between words and deeds can be at once laughable and frustrating. Take, for instance, these lines from the annual report 2004 of a main board company.

“In addition, the annual general meeting (AGM) also provides the forum for interaction and for the shareholders to seek clarification on the operational, financial performance and major developments of the group as well as on the resolutions being proposed.

“Apart from board members, senior management and the company’s external auditors are also available to respond to shareholders’ questions,” says the company.

And here's an extract from another listed company's annual report 2004: “The AGM is the principal forum for dialogue with the shareholders... At each AGM, the board encourages shareholders to participate in the question and answer session pertaining to the business activities of the group.”

These excerpts come from the two companies' corporate governance statements. Under Bursa Malaysia's listing requirements, these disclosures must be included in the annual reports.

If you flip through the other annual reports, you will see plenty more such assurances, all promising shareholders the opportunity to communicate directly and openly with the companies' directors and senior managers at the AGMs.

However, when the AGM season for companies with the December year-end closed last Thursday, we are shown yet again that annual reports do not always mirror reality.

The companies can be compelled to say the right things, but getting them to do the right things is a separate matter altogether. As a result, minority shareholders don't always get the kind of treatment that they are entitled to.

The silence of Fountain View

The first of the two companies mentioned above is Fountain View Development Bhd, while the other is PSC Industries Bhd (PSCI). Both have been in the news lately, although for the wrong reasons, and held their latest AGMs last Monday.

For property developer Fountain View, the date it had chosen (probably months back) was a classic case of unfortunate timing. On that day, major shareholder Datuk Chin Chan Leong was charged with manipulating the company's shares in the stock market, while former remisier Hiew Yoke Lan was accused of abetting him.

Chin is the husband of Fountain View executive director Datin Yam Yuet Chew. He is also a director of two Fountain View subsidiaries.

The charges are the result of investigations by the Securities Commission (SC), triggered in part by the collapse of the share prices of several counters, including Fountain View, which had seen highly speculative trading.

Understandably, many of the Fountain View minority shareholders who attended the AGM were feeling wounded, dazed and anxious. And they wanted answers to a myriad of questions.

However, according to news reports, the shareholders claimed that the directors had refused to comment on Chin's situation, and had told the shareholders to limit their questions to those about the resolutions and the company's performance last year.

To be fair, it is not a stretch to imagine that many of the shareholders were on edge during the AGM, as were probably the Fountain View directors and managers. A “forum for interaction” could easily deteriorate into an angry bout of finger pointing and blame dodging.

Furthermore, some of the shareholders' questions might have been unreasonable and truly could not be answered by the company's management.

Yet, things could have turned out better. Ugly as the mood might be that day, the Fountain View management could have scored a few brownie points by going the extra mile to demonstrate transparency and goodwill.

For instance, stonewalling when asked about Chin's status was a mistake. The excuse that he is a shareholder and that his affairs are separate from those of the company, is a weak one. He is an insider, given his directorship in the two subsidiaries and the fact that he is a substantial shareholder who is married to an executive director.

It would not have been a bad idea for the management to disclose the extent of its cooperation with the SC's investigators, if any

It is not known if the management had taken time during the AGM to talk about Fountain View's plans and prospects. If not, it was another lost opportunity. The information might not have won over the sceptics, but it would have at least shown that the company was still focused on doing business.

Punters have rights too

There is, of course, the argument that many of the shareholders are in a predicament of their own making, that they had bought Fountain View shares based purely on rumours and greed. As such, they should not be venting their frustration on the company's management.

But let's not forget that shareholder rights do not discriminate between punters and long-term investors. If you own Fountain View shares and you turn up at an AGM, you ought to get decent responses to your questions.

With PSCI, the chief complaint is that several shareholders were barred from attending its AGM because the management chose to adhere to a provision of the Companies Act, which it had previously been flexible about.

As a result, several government-linked shareholders failed to execute their plan to vote against a resolution to re-elect PSCI chairman Tan Sri Amin Shah Omar Shah as a director. According to the company secretary, the change in practice was because several shareholders had written in to ask that the AGM be conducted in strict compliance with the Companies Act.

In this instance, PSCI cannot be faulted for following the letter of the law, whatever the motivation. However, the shareholders were placed at a disadvantage because they had not been given advance notice of the stricter procedures.

If PSCI wants its AGM to be “the principal forum for dialogue with the shareholders”, it must first ensure that the shareholders know exactly what they are supposed to do so that they can attend the meetings. That did not happen this year.

There are other examples – albeit less glaring – of how shareholders do not get their rightful treatment at AGMs. For one thing, there is rarely any earnest attempt to engage with shareholders, particularly the individuals.

When was the last time company directors and senior executives bothered to mingle with shareholders, to find out what's on their minds, before and after a meeting?

And how often do shareholders get to hear the thoughts of the directors on important matters, such as corporate exercises? Typically, the CEO or chairman dominates a meeting, and nothing is heard from the other directors.

There have been occasions when companies fix general meetings at times or venues that are apparently not meant to attract a large turnout.

There has been much criticism about how most shareholders who attend AGMs are senior citizens who are more interested in the door gifts and free food, and not in exercising their rights as shareholders. However, this stereotype is slowly fading away.

In a time when investors expect stronger corporate governance, the last thing a company needs is for its shareholders to walk away from AGMs with a bitter taste in their mouths.