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A beginner’s guide to asking questions at shareholder meetings

Mike O'Donnell Mike O’Donnell is a professional director, writer and strategy adviser, and a regular opinion contributor.

'Tis the season of shareholder annual meetings and financial results.

Each day, Stuff is brimming with listed company results, and early on Monday mornings, RNZ’s effervescent Gyles Beckford provides a sneak peek into the upcoming week of annual meetings.

These meetings aren't just a crucial aspect of providing shareholders with transparency and accountability – they are the law.

According to section 120 of the Companies Act, the board of a company must convene an annual meeting of shareholders within six months of the company's balance date and no later than 15 months after the previous meeting.

This assembly offers an opportunity to respectfully assess the past year's financial performance and delivery against the plan while gaining insights into the year ahead. I emphasise the word ‘respectfully’ because shareholders, having put their hard-earned dough in the company, deserve respect.

They have the right to expect prudent management of their investment and clarity on potential returns, whether short or long term.

Similarly, the board and leadership team deserve respect if they've toiled diligently to execute the plan. And in today's challenging environment of declining consumer spending, elevated interest rates, and rampant inflation, that’s no cakewalk.

Annual meetings also serve as an excellent exercise in focusing the mind. Knowing that you must face your shareholders in person at least once a year is a valuable discipline.

The Companies Act stipulates that companies must provide at least 10 days' advance notice to shareholders, including the agenda, any resolutions to be passed, and sufficient detail for shareholders to form a reasoned opinion on the resolution.

A pivotal part of any annual meeting is the opportunity for shareholders to pose questions. These queries can range from awkward to insightful.

Among the worst questions I've encountered was at an early-stage ag-tech company a few years ago.

The accomplished woman founder and chief executive had presented a concise overview of the year and future prospects, then opened the floor for questions. A grey and grisly former accountant asked: "So when are you planning to start a family?"

I was dumbfounded. Not only was this question offensive and outdated, but it also had no relevance to the comprehensive business plan she had just outlined.

Setting such cringeworthy incidents aside for the moment, what are the meaningful questions one should ask at an annual meeting? Questions that illuminate rather than cast shadows.

A good starting point is to inquire whether the board's future plans necessitate additional working capital and, if so, how it will be procured – through debt or the issuance of new equity? Are shareholders going to be asked to put their hands in their pockets?

Given the recent Mainzeal Construction case in the Supreme Court, another pertinent question is whether the board possesses the right skill set to support management in tackling upcoming tasks. Have they done a skills matrix exercise to match competencies with challenges?

As I've mentioned before, directors should be akin to underwear – fresh changes are welcome. Two terms are acceptable, but three terms are the maximum. However, there may be an argument for single-term changes, especially for high-growth companies operating in rapidly evolving markets.

Speaking of high-growth companies, particularly those in their early stages, shareholders should clarify when, and if, the company intends to transition from revenue growth to profitability.

An excellent question in this context is when the company anticipates becoming earnings positive on a cash basis – when it can sustain itself without burning cash.

In other words when will it be able to wash its own face?

Not all companies need to follow this path, especially if they prioritise revenue and market share over immediate profitability. Still, the rationale behind the choice should be evident to shareholders, not concealed within the boardroom.

A fourth question revolves around risk. Specifically, what is the most significant risk to the company's plan for the next year, and what steps is the company taking to mitigate it?

This leads to a final useful question: In an era of disruption, what is the company doing to ensure diversity in its thinking and inclusivity in its workforce?

Based on my earlier example, I contend that one way to stifle diversity in a company is to pay too much attention to the opinions of retired, monochromatic accountants.

Simply put, shareholder annual meetings are a crucial element of corporate governance, offering transparency, accountability and the opportunity for shareholders to participate actively in the company's trajectory. Thoughtful questions inject light rather than casting shadows.





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