2019: The Last Minute
This sixth edition of IiAS’ study on timelines of Annual General Meetings (AGMs) of NIFTY 500 companies, confirms our thesis that companies with weak performance wait till the last minute to hold their AGMs. IiAS continues to believe corporate India must be better structured to close its books, publish its annual reports and target its AGM within four months of year-end.
Social scientists no longer view procrastination as a time management issue. Procrastinators are seen as being more focussed on ‘managing negative moods.’ Corporates, it seems, are not immune to this affliction; companies with weak performance wait till the last minute to hold their AGMs. Perhaps, companies hope that their shareholders will not focus on weak financial numbers as attention shifts to the new financial year’s performance.
The 2019 AGM Season
August and September remain the busiest months for both corporate India, boards and investors. In FY19, 479 of the NIFTY 500 companies reported a March year-end with 66% of these companies holding their AGMs in August and September - a figure largely unchanged since 2014, the first year of our analysis (see Exhibit 1).
The FY19 AGMs were concentrated in two two-week periods beginning 22 July and 15 September. 121 companies held their AGM in the two weeks starting 22 July and 105 in the final weeks of September.
This concentration of AGMs not only aggravates investors who need to track a large number of companies in a shorter time frame but may also prevents directors who are serving on multiple boards from attending shareholder meetings.
Correlation with financial performance
The median return on equity (ROE) is lowest for companies that hold their AGMs in September: a trend we observe for the sixth straight year.
As most of the public sector banks (PSBs) hold AGMs in June and the clean-up of their balance sheets has been dragging down the median ROE for June, we have adjusted for PSB performance since 2016. Removing the effect of PSB performance from the June AGMs, the median ROE for companies holding AGMs in June is provided in Exhibit 4. The unadjusted number is shown in Annexure A.
That poorly performing companies hold AGMs in September is further corroborated by the fact that more loss-making companies hold their AGM in September (Exhibit 4). In FY19, 40 of the NIFTY 500 companies reported losses and 40% of them held their AGMs in September.
Debunking the ‘large and complex’ myth
IiAS continues to contend that companies’ rationale of delaying holding their AGMs because of their large and complex size is untenable. To be a part of the NIFTY 500, companies will necessarily have size and many business complexities. Yet, using the median total assets and gross sales as a proxy for complexity, we find that companies with AGMs in June and July are much larger and complex that those with AGMs in August and September. A large bank like State Bank of India Limited held its AGM in June 2019, and another large bank like HDFC Bank Limited held its AGM in July 2019; a large company like Reliance Industries Limited held its AGM in August 2019. Therefore, size and complexity cannot be a deterrent in holding AGMs sooner.
In the interest of timely communication and interaction with shareholders, companies must institute systems and processes to ensure that their annual general meetings are held soon after the fiscal year end. However, Corporate India continues to delay holding its AGMs. Perhaps, companies hope that their shareholders will shift focus away from weak numbers and towards the new financial year’s performance.
While the number of AGMs held in September have decreased over the years, over two-thirds of the companies have held their meetings in either August or September in 2019.
The Kotak Committee on Corporate Governance had advocated that the top 100 listed companies by market capitalization hold their AGMs within five months of the financial year end i.e. 31 August 2019. Reduced number of directorships will also lower the burden on board members. These recommendations were accepted by SEBI, and therefore we hope that this will nudge companies to bring their AGM dates forward.
If 34% of NIFTY 500 companies, encompassing multiple sectors and sizes, can hold AGMs within four months of the financial year-end, the remaining two-thirds should be able to do so too. Over time this is what regulators should target: reduce the time given to companies to hold their AGMs to four months.
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