Wave goodbye to a show of hands

  • Date:01 Jul 2013
  • Type:Company Director Magazine
John M Green argues that voting by a show of hands is long outmoded.

The 2013 annual general meeting (AGM) season approaches. This year, let’s show the door to the show of hands. AGMs are far too important to leave to this antiquated, easily manipulated and sometimes theatrical voting method.

Many of us cherish the AGM because it’s the sole medium for shareholders to speak their minds and to be guaranteed to be heard, regardless of how big their investment is or who they are, be that a student, worker, retiree or big-end-of-town fund manager. On this basis, AGMs are very democratic.

It’s useful for a board – and indeed other shareholders – to hear differing points of view. But when it comes to an actual vote, corporate democracy is achieved by giving each share, not each shareholder, one vote each. 

With less than a minuscule 
0.2 per cent of shareholders attending AGMs, a show of their hands can easily paint a completely false impression of the investor base’s true mood.

A disgruntled or stacked show of hands can wave a squall of stink over an AGM even if the 99.8 per cent of shareholders physically absent are in fact content. `

How much more sensationalist is a media report when a forest of "nay" hands stabbing the air "forces a board to resort to a poll" to save its clearly out-of-touch necks.

For years, directors have been moaning about misguided media reports like that, but we shouldn’t blame the journalists. These are self-inflicted wounds. Boards have complete power to halt this charade and while many have done that, many others surprisingly have not.

Decades ago, voting by a show of shareholder hands was appropriate. But those halcyon days vanished when the current one-share, one-vote regime galloped onto the scene to crush, among other things, the ugly practice of incumbent boards themselves stacking meetings with a bunch of their clubby mates with negligible shareholdings but big hands and loud, whisky-soaked voices.

Continuing to vote by a show of hands today is not only undemocratic, it can easily misrepresent the true colour of the shareholder mood.

It’s great theatre, that’s true, being close to the hearts of shareholder activists and some media. But any fair-minded investor or journalist should view it as the travesty it is.

As directors, we’re charged with seeing the company is run in our shareholders’ interests. That’s all shareholders. The less visible hands of the majority who choose to vote by proxy, either because they can’t attend in person, or don’t see the need to, still count.

AGMs matter not least because they shove boards and management face to face with their investors, busting open the doors on the corporate cloister we’ve been lurking inside of for the rest of the year, and allowing all questions, good and bad, and demanding answers, all good.

But that doesn’t mean the few who physically show up are truly representative of the many, especially when one hand waving in the air can just as easily speak for one hundred shares or a million.

Permitting a vote on an important issue by a show of hands actively discriminates against shareholders who simply can’t get there on the day or who have invested more of their savings in the company.

It’s true that a show of hands is easy and cheap. No one has to fill out forms, the result is fairly obvious and you don’t have to pay an auditor or share registrar to check and count all those voting cards. But none of that matters if it fails to reveal the true will of the investor base.

For some time, the chairmen of many companies – including those I sit on the board of – have dealt with this simply and effectively by announcing at the start of an AGM that they’re exercising their discretion to put all resolutions to a poll, and not to a show of hands.

These polls – for all resolutions – usually open at the beginning of the AGM and close at the end. An additional virtue of this is that if a meeting drags on, as some do, and a shareholder needs to leave before the end, he or she isn’t forced to wait for a particular agenda item to exercise his or her vote on it.

The federal government’s Corporations and Markets Advisory Committee has received submissions urging a law change to toss the outdated show of hands practice into the dustbin of history.

But until that happens, I advocate that the new governance norm should be for chairmen to exercise their discretion to conduct voting by poll.

While conducting a poll is fairer and easy to do, Computershare found only 58 per cent of companies voted by poll on all their resolutions in 2012.

Even more surprisingly, Link Market Services reveals that a whopping 72 per cent of AGMs voted on their remuneration reports using a show of hands.

What were those boards thinking? Shall we take a vote on it?