Shareholder Show-of-Hands is a Sham

The annual general meeting fills many chairmen with dread. But the one piece of theatre at these events - the shareholders' show of hands - is disappearing. Finally the illusion of shareholder democracy has been exposed.

When Sir Stuart Rose defeated his rebels at this year's Marks & Spencer meeting there were no proxy cards waved in the air by loyal customers and disloyal pension funds - simply a clinical poll by the registrars.

Rose may revel in such annual events but for many chairman, facing the ranks of ordinary investors is the low point of the year. It is no occasion for the shy or timid or those unaccustomed to public speaking.

Addressing City institutions is completely different to facing private investors. The skills in chairing a board meeting of a dozen directors are little use in controlling hundreds of shareholders.

There is the danger of an embarrassing question from left-field, even if the only embarrassment is the chairman's ignorance of the answer. A balance has to be struck between allowing debate and curtailing questioning to reach a conclusion.

There is a need to look like a leader without patronising private investors who think an annual meeting is the forum for complaining about products.

And as Sir Stuart knows, the AGM is increasingly gladiatorial, a chance for disgruntled shareholders, professional agitators and corporate governance zealots to castigate directors publicly. The vote against re-election resolutions or the remuneration report is a ritual recrimination.

But the theatrical show of hands vote, in which chairmen hoped to call on small shareholders for support and declare the result almost unanimous, is disappearing. Companies that declare results by counting hands may soon be in the minority: British Airways is among the increasing number that skip the show of hands and go straight to a full poll.

The loss of this theatrical moment of audience participation should not be mourned however. The show of hands is one of the greatest con-tricks against the small investor. It gives the illusion that they have power when their votes are insignificant.

Those chairman who carefully count the hands and declare the resolution passed do so only when they know the result of the proxies agrees with those in the room. If the small shareholders vote in accord with the institutions that have already returned their cards (electronically these days) then the private investors are allowed to think they have decided the issue; if their vote differs from the proxies then the chairman overrules the room.

So the private shareholders' hands count only if they agree with the big pension funds and other City holders. Their raised arms are completely pointless: the big investors' view will always win -- it is just that chairmen sometimes pretend it is the small guys' vote that decides the matter.

The show of hands gives the false impression that resolutions are decided on a one-man one-vote basis when equity dictates it must be one vote per share.

The coup against Sir Stuart was based on the rebels forming 100 companies each owning a single share. That is enough to squeeze a special resolution onto the notice of meeting and if each company's representative had attended they might have swung the vote. They are off-the-shelf companies however, and the rebels could not muster the manpower. So instead their proxies went into the poll and counted for just 100 votes out of 1.5bn.

Not much theatre there.

(Pic: jonny.hunter cc2.0)