AGMs - Stand and Deliver

Tesco’s annual general meeting on 18 June should have been an occasion for celebration. Another record year had seen the group’s profits reach £1.6bn, and the present financial year looked set for even stronger growth, with UK sales rising 7.8% on a like-for-like basis in the three months to 22 May.

Instead, even before they entered the meeting, shareholders had to dodge barracking protestors from environmental and farming pressure groups. Inside, chief executive Terry Leahy was forced to address complaints that Tesco was harming British farmers, stressing that the group bought locally wherever possible. But even as he spoke Friends of the Earth distributed copies of a briefing to Members of Parliament entitled ‘Every Little Hurts: Why Tesco Needs to be Tamed’.

The company’s AGM is often the target of activists with an axe to grind, says Tesco spokesperson Steve Gracey. Tesco is a responsible company with a good track record in bringing jobs, housing and benefits to local communities around the country, he points out. Sure enough, the protests received scant coverage in the next day’s press.

Not so with the AGM of oil giant Shell Transport & Trading on 28 June, where the usual environmental protestors were joined by angry investors seeking explanations for the various downgradings of Shell’s oil and gas reserves that has seen the company’s share price savaged. Chairman Lord Oxburgh gamely tried to keep the lid on the protests, but as the following day’s press reports made clear he was largely unsuccessful.

Management was slammed as “living in a parallel universe” and the payout to former chairman Sir Philip Watts was described as “scandalous”. The company’s environment record was once again “abject”, and even normally restrained institutional investors expressed themselves as “deeply disappointed” at evidence of “deep-seated corporate and cultural weaknesses”. Predictably, the media had a field day as salvo after salvo landed on the punch-drunk board.

In public relations terms, the debacle could hardly have been more comprehensive. After several months of bad news, Shell had desperately needed to present itself as a company that had got to grips with the issues that it faced, and which was on the road to recovery. For company management, 29 June newspapers cannot have made comfortable reading.

And the consequences can be far-reaching. “AGMs are important affairs, and companies tend to underestimate the impact they have on their reputation,” warns Neil Hedges, chairman of London-based public relations and reputation management consultancy Fishburn Hedges. “It’s a rare opportunity for small shareholders to have their say, and how the board responds can have a direct impact on the way the company is perceived.”

So what should board members do when faced with awkward questions and protests at an AGM? One problem is that few boards have direct experience of conducting their AGMs in such conditions: rarely does a FTSE company see more than 50 or so shareholders at an AGM. At companies with market capitalisations of a few hundred-million pounds, a handful of institutional shareholders is about the limit. So when a board finds itself fending off a roomful of angry questioners, its initial reaction is often one of shock.

Yet trouble rarely comes out of the blue. “It shouldn’t be a surprise,” says Kerry Hallard, managing director of public relations consultancy Buffalo Communications. The best tactic, she advises, is to be proactive with critics. “Companies that have open communications policies, and which follow best practice in how they operate, are unlikely to be faced with a barrage of protests. But if you just ignore the critics, you’re going to find that people who are very vocal see the AGM as an opportunity to get a hearing,” she warns.

Don’t make the mistake, either, of thinking that banner-waving protestors outside the meeting won’t be allowed into it. By law, companies cannot exclude shareholders from AGMs, and to gain access all an activist need do is buy a token shareholding. Not only does this give them full rights to attend the meeting, but the company itself will obligingly send along annual reports and documents.

It’s also a mistake to underestimate the nature of the opposition. Yes, AGMs are predominated by smaller shareholders – the institutions have their own channels of communication – but “the calibre and sophistication of today’s retail shareholders is higher than ever before”, says Tim Grey, a director at financial public relations consultancy Bell Pottinger. Patronise them at your peril, he warns. “Be open, honest and frank. Treat them with respect,” he advises. And a few home comforts don’t go amiss, either. “Many shareholders will have travelled a long way to get to the AGM, and a reasonable level of catering helps to acknowledge that,” he says.

Another important point, adds Nick Bastin, a director at London-based specialist financial public relations company Smithfield, is to remember that there’s no need for AGMs to become free-for-alls. The media, for example, should be directed to a segregated seating area from which they may observe. “The meeting is for shareholders, not journalists,” he stresses. Basic good practice, such as making sure that only shareholders and accredited media are allowed in, and that only shareholders ask questions, can go a long way towards imposing a structure on the meeting.

Good practice also involves thorough preparation. “Companies have a good idea of the areas in which they are vulnerable, and the board and its advisors should sit down and work out its position on the issues it faces,” he stresses. “Anticipate the questions, prepare a draft Q&A document, decide who will respond to which questions and rehearse. Above all, rehearse.” Another useful tactic, adds Bastin, is for the company secretary to sit next to the chairman so that any procedural questions can be dealt with smoothly.

It’s also helpful for the chairman to lay down the ground rules at the start of the meeting, adds Simon Brocklebank-Fowler of Cubitt Consulting, a London and New York-based financial public relations boutique. “The chair should ask questioners to identify themselves and inform each shareholder that they can ask one question, possibly followed by one supplementary question,” he says.

A good strategy, he adds, is to have a contingency plan for things going awry, such as a shareholder making an impassioned speech or asking too many questions. Stay calm, says Brocklebank-Fowler. “Our advice is to keep cool, let it run and don’t get aggressive.”

While it’s possible to have someone’s microphone switched off, or call a vote to have a shareholder excluded, such tactics should be a matter of last resort, he advises. “The worst thing a company can do is give an impression that it’s frightened of talking to the public,” says Brocklebank-Fowler.

Jackie Smith, a director of Speak First, a communications training company, reckons that coaching in advance of a tricky meeting can often pay dividends. “Does the board appear to be working as a team? Do its members come across as confident or defensive? Perception is important,” she stresses.

Large shareholder meetings can employ technology as a defensive mechanism. Jack Morton Worldwide is a global business that produces meetings: it organises Marks & Spencer’s AGM, for example. Its policy is to encourage shareholders to pre-register questions, which once entered into a computer are placed in a queue to be answered. Shareholders register their questions at booths dotted around the event and await their turn.

But while they wait, says Julian Pullan, Jack Morton’s London-based director of operations, a well-prepared team in a back room is hard at work creating answers to the questions, which are fed to the board via monitors in front of where they are seated. The typical large AGM, he says, might have three active monitors: one monitor showing the current question and response, one showing the next question and response, and one showing the member of the board who is currently speaking. Such a system was in place at Marks & Spencer’s recent AGM, says Pullan.

Taken together, such tactics can help diffuse even the trickiest of AGMs. And finally, remember that preparation for the next AGM can start even while the current one is underway. “Have plenty of people on the ground on the day,” urges Joanne Milroy, a partner at London-based communications consultancy Eloqui. “See who is there and who is talking to who. A good presence on the ground can sometimes identify pressure points.” l

“Why should one person with one share be able to have a cup of coffee and a sandwich and disrupt the company?”

Sir Richard Sykes, non-executive director of Rio Tinto, calling for small shareholders to be banned from AGMs in 2003.

“Bend your legs.”

Lord Marshall’s answer to a shareholder who said he couldn’t stretch out in BA’s new business class flat beds.

“Would you ask me a question and not give me a speech?”

Lord Hanson interrupting a waffling question from a small shareholder.

“I would like to wish him a long life, because he needs it to spend some of the money he managed so skilfully to extract out of us.”

A shareholder on the retirement of SmithKline Beecham’s chief executive, Jan Leschly.