At Berkshire Hathaway, the annual shareholder meeting is a 3-day event which includes a shareholder shopping day, a 5K race, shareholder night at a local Omaha steakhouse and of course the meeting itself which begins at 9:15 a.m. and wraps up approximately six hours later.
Yet every year across America, thousands of small public companies host obligatory annual shareholder meetings to empty or lightly filled conference rooms. A formal script is read to vote in the legacy accounting firm and directors, sometimes an overview of the year is offered and questions are answered (if any shareholders are present). Soon thereafter, management departs and employees duck in to the conference room to grab the uneaten muffins.
These meetings can be an uncomfortable embodiment of the seemingly barren existence of a small public company.
The Value of a Pre-Set CEO “Office Hour”
Shouldn’t we do away with this arcane ritual and let everyone vote their shares by mail or electronically and be done with it?
Not necessarily. The value of the annual meeting is not the legal review of already determined proxy votes. Rather, the value rests in the fact that this is the one time that any investor - large or small - can meet the CEO face-to-face and ask questions of their company. It is similar to academic office hours when a professor is guaranteed to be available. Few students take advantage of it, but it remains a vital check and balance ensuring that faculty is available to the student body. Similarly, shareholders can choose not to attend an annual meeting because they are up to speed on the business, aligned with management, or simply don’t care. But the door is wide open if they want to, and that is important.
There has been a rise in the amount of companies hosting purely virtual meetings – there were 154 virtual-only meetings in 2016, up from 90 virtual-only meetings in 2015, but I see no reason to do away with a physical meeting when the resources necessary to invite all shareholders to meet face-to-face is the cost of muffins and coffee.
A Fitting Place To Discuss Company Progress
Frequently, management does not provide a review for shareholders at the annual shareholder meeting because there so few shareholders to present to.
This is a lost opportunity given the Company can proactively make the presentation available to the broader shareholder base by posting the slides or a full webcast on their website.
Providing a shareholder update during the same meeting as the voting in of directors fittingly links these two elements. The board is tasked with ensuring the best management team and best strategy is in place for long term shareholder value. In an annual meeting setting, management can review performance and strategy through a longer term lens than quarterly calls, something that Warren Buffet certainly espouses. Furthermore, educational content and the sales pitch of an investor conference presentation can be omitted, allowing management to specifically provide a concise review of the successes, and importantly the challenges, of the past year as well as a review of the growth strategy.
Companies that take their annual meeting seriously generally take governance and shareholder value seriously. Don’t buy too many muffins but keep your physical annual meeting, share a customized update at the same time that your board members are voted in, and broadcast that long term review for all shareholders.
John Nesbett, President, IMS