A practical guide to AGMs

Knowing what to do with your dividend statement is easy. Clutch it to your breast, coo softly, and savour the arrival of money in your bank account. Then hand it to your accountant at tax time. But what do you do with your Notice of Annual General Meeting (or AGM)?

You've probably received a few recently. If you're like most shareholders, you'll ignore it for a couple of weeks. Then, when it's too late, you'll take another look and send it off to meet its destiny in the recycling bin. Problem solved.

But even if you attend AGMs only rarely, it's worth understanding how they work. Here's why.

At its core, an AGM is shareholder democracy in action. While in practice small shareholders have Buckley's chance of effecting change, shareholders as a group can make a difference. Informed shareholders who ask the right questions make management more accountable. And if you don't take an interest in management, they're less likely to consider the interests of small shareholders.

Format

The AGM format is pretty standard (see Table 1). Bear in mind that the somewhat-forbidding 'Notice of Annual General Meeting' you receive in the post deals only with the formal (legal) business. We'll turn to voting shortly, but generally the formal business is the least interesting part of the meeting.

Most shareholders attend for the addresses from the chairman and chief executive. While the addresses focus on the year just ended, they sometimes include an outlook statement. You should at least read these addresses to get a feeling about management's optimism – or otherwise – for the current year.

While the addresses are worth hearing, they are carefully scripted to avoid controversy. Perhaps more important is management's response to shareholder questions. It's your one chance each year to see how management deals with some difficult issues – and it can be revealing.

Should you attend?

You should physically attend a company's AGM at least once if possible, perhaps the first year after you've bought the shares. Even better, attend before you buy shares at all. Anyone can attend an AGM, although only shareholders can vote or ask questions during the meeting.

Engaging with the company means you'll probably understand the business better, and it gives you the chance to eyeball management behaviour early on. If nothing else, it's a chance for a free cup of tea and a shortbread biscuit.

But a company's size might influence your decision. These days most large company AGMs are stage-managed circuses. Question time invariably involves a bunch of shareholders who love the sound of their own voices – we're looking at you, Jack Tilburn – although occasionally a gem of a question will make its way through the microphone. Many large companies provide webcasts of the proceedings, so consider watching or listening online if you want to dip out during the boring bits.

You'll usually have more chance of engaging with management by attending small company AGMs. Often you'll be able to meet the chief executive or other directors one-on-one. If they realise that they have engaged shareholders like you on board, it may make them less likely to do something silly.

Should you wish to ask a question during the meeting, don't delay when the chairman asks for them. Unlike 'Woodstock for Capitalists', few directors enjoy taking them and you'll need to be fast on your feet. Other shareholders will appreciate if your question is well-researched, specific and concise.

Should you vote?

Voting on resolutions is the formal business of an AGM. While other resolutions may be presented, the election of directors and the adoption of the remuneration report are relevant to every meeting.

Electing directors is how shareholder democracy is exercised – in theory. In practice, knowing whether a particular director is looking after your interests is rather more difficult. Oftentimes you won't know whether directors are competent until after some major mistake unfolds.

Getting to grips with the remuneration report (outlined in the company's annual report) is just as difficult. Complicated and confusing, remuneration reports deal with director and management incentives. Knowing what's appropriate isn't easy.

While not necessarily focusing on the same issues as a value investor might, the Australian Shareholders Association can help here. The ASA provides a handy summary of its voting intentions at upcoming AGMs – and more importantly reasons why – on its website (for free). If you're looking for some guidance about how to vote, this is probably a good place to start.

There's no substitute for research and experience when it comes to voting. Be independent-minded and if a resolution fails the smell test, don't be afraid to vote against it. There's no obligation to vote the way directors want you to.

What's a proxy?

You don't need to attend the meeting to vote. This is where the 'proxy form' you received with your Notice of Annual General Meeting comes in.

You appoint a proxy – or agent – when you don't wish to attend in person. Most people just appoint the chairman of the meeting, who must vote according to your directions. Make sure you read the directions on the proxy form and sign in accordance with the instructions to ensure your vote is valid. Then make sure the form is returned to the share registry at least 48 hours prior to the meeting.

True, the world won't end if you fail to vote. Plenty of shareholders routinely don't vote. But apathy is risky – it becomes more likely that management will look after its own interests before yours.

So here's a project for you. The next time a company's Notice of Annual General Meeting lands on your kitchen bench, make time in your diary to read through it in conjunction with the annual report. Take note of anything you're unhappy about or that doesn't make sense.

Then attend the AGM, vote and ask a question either during the meeting or afterwards. You might be surprised what you learn, you'll be a more engaged shareholder and, even better, you might even score a decent afternoon tea.