By James Thomson
Chip, chip chip. Under the cover of COVID-19, the federal government is chipping away at the rights of small investors – the same small investors that helped it retain office at last year’s election.
This is perfectly illustrated by the fact that Geoff Wilson, who last year led an exceptionally effective campaign against Labor’s attempt to kill off franking credit refunds, is set to lead his army of 90,000 retail investors into battle against the government’s proposal to make temporary rules allowing virtual annual general meetings permanent.
Wilson’s anger is borne of experience. He’s seen how virtual AGMs have worked in recent months and he’s deeply unimpressed.
When a shareholder the size of Wilson Asset Management is getting its questions screened, he rightly wonders what’s happening to small retailer investors.
There were plenty who whacked Wilson as a Liberal shill during the last election campaign, but he deserves marks for consistency. He went in to bat for the little guy against Labor over franking credits and now he’ll go in to bat against the Coalition over virtual AGMs.
Wilson has powerful supporters, including the Australian Council of Superannuation Investors and veteran investors Gary Weiss and Gabriel Radzyminski of activist investor Sandon Capital.
Weiss has been on both sides of the AGM fence as a director and an investor, and in his long career as a corporate raider has been the protagonist in some famous moments of AGM theatre.
A story worth narrating
(One of his favourite stories dates from 1988, when he was with IEL and trying to buy Robert Holmes à Court’s Bell Resources. The AGM loomed as a big moment, but after Alan Bond emerged and bought out a part of Holmes à Court’s stake, Bell decided to shift the meeting from a Monday afternoon in Perth to a Tuesday morning.
As a trained lawyer, Weiss believed a meeting couldn’t simply be cancelled like that – so he turned up on Monday afternoon, conducted the meeting himself with his lawyer in an empty room, adjourned to the bar afterwards and sent the bar tab to Bell. At the delayed meeting the next morning, Holmes à Court ignored all of Weiss’ questions, but the investor got the last laugh when the WA Supreme Court declared his meeting to be the valid one.)
But even when Weiss has been on the receiving end of tough questions, the benefits of the meetings are clear.
“That’s a function of being on the board and being accountable to shareholders who are the owners of the enterprise,” Weiss explains.
“These are important events, particularly for companies that had some need to account in a sense for performance or conduct.”
Radzyminski makes the excellent point that AGMs are not just about the formal business of the meeting. The traditional cup of tea held afterwards is one of the few chances that directors have to actually speak to the owners of the company in person.
“It’s not a one-way street,” Radzyminski says. “Good boards should want any and every opportunity to mingle and engage with their shareholders.”
The question-time connection
The Liberal backbenchers who were only too happy to stoke Wilson’s campaign against Labor last year would do well to think about the AGM as analogous to question time in Parliament.
Like question time, AGMs can be a bit theatrical and stage-managed. Like question time, AGMs can sometimes seem like a fair bit of time is wasted on procedural matters. Like question time, there are plenty in the audience and on the stage who are making up the numbers.
But like question time, AGMs provide one of the few times when the people in charge are forced to answer questions, in public, about what they’ve done and haven’t done.
Neither forum is perfect, but both are vital for transparency and accountability.
There’s a wider context here that is important. There is a sense among some investors and advisers that the virtual AGM push is another example of temporary COVID-related changes being made permanent, despite the potential damage to shareholders’ rights.
The ASX class waiver allowing upsized capital raisings was a reasonable measure to help make capital raisings easier in the midst of the pandemic panic.
But it involved a clear trade-off for smaller investors, who have typically suffered the brunt of the upsized dilution. The temporary measure has been extended once and there are clearly many in deal-making land who would like to see it made permanent.
Similarly, the government’s decision to provide relief for boards from continuous disclosure could be justified by COVID-19, although this too involved an even clearer blow to shareholders’ rights.
If the extension of this relief was disappointing, the persistent suggestion that it should be made permanent is baffling. Why on earth would we risk damaging a world-class disclosure regime?
It’s hard to get away from the sense that the government believes directors need protection from burdensome compliance. The constant whingeing from the directors’ club about class actions – that they’re somehow preventing companies from taking risks – has clearly fed this push.
Whether class actions are as big a problem as the directors’ lobby makes them out to be is very much up for a debate, but it’s a totally reasonable debate to have – look at the system, look at the legislative framework, look closely at how directors’ insurance is or isn’t working.
But don’t make boards any less accountable or transparent. As we saw through the banking royal commission and the prudential regulator’s review of bank boards and governance, and as we’ll see from the Crown Resorts casino inquiry, more scrutiny results in better boards.
Good boards know it, too. It’s the shoddy ones – the ones that retail investors need the most protection from – that will take the greatest liberties if virtual AGMs and continuous disclosure relief become permanent.