James Moore: Why annual general meetings are good for directors

Analysis: Prudential is not a business like Tesco, whose chief executive visits a store every day and regularly talks to real customers
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The Independent Online

Critics of annual meetings say that they don't really matter. Big institutional shareholders don't turn up because they get their questions answered whenever they want in one-to-one catch-ups with directors. They then dutifully cast their votes backing those directors weeks in advance. Annual meetings, the nay-sayers claim, serve as little more than a chance for small shareholders with time on their hands to enjoy a trip to London with a free lunch thrown in.

In many cases that's indeed what they are. When companies are doing their job and performing well, that is. But annual meetings serve an important purpose too. Company directors spend their lives in ivory towers surrounded by batteries of yes men who are employed, often at considerable expense, to tell them that all is rosy in their respective gardens.

The point about an AGM is that it forces those directors to listen to views that they might not like to have to listen to. It forces them to pay heed to real people, small investors whose wealth is directly affected by the decisions those directors take. It forces them to account for what they have done.

That's particularly important in an industry like financial services. Prudential is not a business like Tesco, whose chief executive visits a store every day and regularly talks to real customers. That rarely happens in life insurance, or its ugly sister, banking. The ivory tower syndrome is a very real one.

These businesses do a shockingly bad job for their customers. Customers they rarely pay much attention to, if the complaints data published by the Financial Services Authority are anything to go by (they have been rising relentlessly). Of course, AGMs aren't for customers (although many small shareholders are customers) but they do at least mean that directors have to sit and listen to the views of the little guy.

They might not take much note of them. If Prudential is anything to go by, they probably won't. If some of the scenes in and around the hall were anything to go by, together with the expressions on the faces of its directors, any contrition is only skin deep.

But even if Prudential's directors choose not to hear, it is good for them to be forced to listen, even if it is only once every year.