Why the long-established annual meeting should be retired
By Norm R. Augustine
The middle-aged man in the front row rose from his seat and announced to the assembled throng that it was time to put on the accoutrements he wears for such events and dutifully donned a rubber clown’s nose.
The aging woman wearing hot pants, having knocked over several potted palms, loudly shared her views regarding the heritage of the off-duty policeman who had told her she could not simply walk around the metal detector but had to pass through it.
Another attendee suddenly rushed onto the platform and handed a large dead fish to the presider. Running from the room, a young woman threw what she shouted was blood (turned out to be ketchup) on the walls.
Barnum and Bailey’s final act? No, just a few of the incidents I have witnessed while attending a variety of those exercises in futility known in corporate America as annual meetings, said to be the very embodiment of corporate democracy. Having attended about 70 annual meetings (and over 500 board meetings) of Fortune 100 corporations, I always think I’ve seen it all. That is, until I attend the next one.
One elderly gadfly who was particularly renowned for making a shambles of annual meetings, once called me to say that she “needed” to attend our annual meeting but that she also needed to attend two others that were scheduled on the same day. If, she advised, I were to take her to dinner, we could discuss the annual meeting of the firm I served as CEO, then it would be unnecessary for her to attend our meeting. (We had breakfast together, at a public restaurant. It worked.)
If this is life under corporate democracy, the most fair and effective system of governance the world has yet devised, what must life be like under the alternatives? Were the ancient Greeks to attend a modern-day corporate annual meeting they would probably be rolling over in their shares. George Bernard Shaw seemed to have it right when he asserted, “Democracy is a device that assures we shall be governed no better than we deserve.”
CEOs have, of course, struck back, no longer providing free food at annual meetings; scheduling them to begin just before lunch in the hope that starvation would soon end the interminable affairs; scheduling them the same day as General Electric’s or General Motor’s meetings; limiting content—no presentations, just the votes, please—and holding them in Fargo, N.D., in early March. (The one notable exception to all this futility is the world’s most popular and substantive annual meeting which is held in, yes, Omaha, Neb.)
Ironically, less than 1% of shareholders attend annual meetings. Few professional investors would be seen dead at such extravaganzas, even though they often cost a million dollars to stage. One reason for this is that when the meeting is called to order (pun intended) the chairperson almost always has in his or her possession an overwhelming majority of the votes—because they have already been cast by mail, and the result is therefore preordained. And, oh yes, it is generally against the rules to seek votes on issues newly raised at the annual meeting. Most attendees tend to be locals seeking a respite from boredom, retirees from the firm enjoying a reunion, gadflies seeking whatever it is that gadflies seek, union members demanding redress for some perceived aggrievement, and rebels with a cause (the cause seldom falling within the province of management to address).
Annual meetings, the cornerstone of corporate democracy in America since the first one was held hundreds of years ago when most of the attendees arrived by horseback, have changed little in the intervening years. Ironically, the creativity of the very kind of firms bound to this tradition has taken us from Morse code to satellite communications and from mousetraps to the Bluetooth mouse.
So what is to be done? Well, for starters, one might acknowledge that in the current era people shop in virtual stores without ever leaving their homes; a surgeon in New York removes a patient’s gall bladder in France using a remotely-controlled robot; and people carry on conversations from their homes with machines located thousands of miles away. No, I am not (yet) recommending replacing boards and managements with machines (the “driverless corporation”), but there might be an alternative to gathering everyone in a room simply to try to exchange information, particularly when the majority of time is consumed by comments from individuals owning a de minimis number of shares.
Democracy, as the basic form of governance of American firms, clearly needs to be preserved at its roots by corporate America. Firms should not be run by special-interest cabals of directors (democracy protects certain rights of minorities), nor should they be run to serve the interests of the CEOs, who, as those individuals are wont to forget, are simply hired hands of the shareholders—albeit well-compensated hired hands.
I propose the revolutionary idea that the long-established version of the annual meeting should be honorably retired and replaced with a dusted-off version of the 21st century meeting I first offered years ago. The basic idea is founded on the notions that technology has advanced over the past two centuries; that most owners of American equities are not located within an hour’s drive (or horseback ride) of Fargo, N.D.; that 40% of U.S. equities are owned by individuals and institutions that are not even located in the United States; and that annual meetings of businesses should be, imagine this, business-like. It’s all pretty simple, requiring just five steps.
- Step I is for the board of directors to send all shareholders, by electronic means, of course, a report on the firm’s health–along with a discussion of the 10 major issues it confronts. (Having traveled in 126 countries, I see very few people who do not have access to a cell phone, and of those who do not, even fewer hold substantial numbers of shares in corporate America.)
- Step II is for shareholders, so inclined, to electronically submit to the firm’s independent auditor questions they would like to have management or the board address, along with resolutions that they would like to have appear on the ballot.
- In Step III, the independent auditor would compile from the above submittals a set of significant, relevant, non-redundant questions and submit them to management. Under
- Step IV, an electronic “meeting” would take place wherein the board and management would electronically submit to shareholders the answers to the above questions.
- Finally, in Step V, the shareholders would cast their electronic ballots. No metal detectors, no ketchup, no clown’s noses.
Perhaps worthy of note, under this proposal voting would actually take place after the “discussion” of issues rather than before it; the latter being the de facto practice at today’s annual meetings. Although apparently arevolutionary idea, to corporate America, even Washington politicians realized that, say, presidential debates should take place before the election, not after it.
As Winston Churchill prophetically observed, “You can always count on the Americans to do the right thing—after they have tried everything else.”
Norman R. Augustine is the retired chairman and chief executive officer of the Lockheed Martin Corp., the nation’s largest defense contractor, and a former undersecretary of the Army. He is a former member of the board of directors of ConocoPhillips, Black and Decker, Procter & Gamble and Lockheed Martin, and has served on a number of private company boards.