If annual shareholder meetings are held far away from home headquarters, earnings results may not be as up to par as companies want them to be.
A new study by Yuanzhi “Lily” Li of the Fox School of Business at Temple University, and David Yermack of New York University, titled Evasive Shareholder Meetings, found that companies tend to schedule meetings in remote locations when managers have information about future performance they want to keep private to avoid scrutiny by shareholders, activists and media.
The research team gathered data including location, days of the week, and the start time of 9,616 annual meetings between 2006 and 2010. Their findings indicate a systematic pattern of poor company performance, which followed annual meetings that are, moved a great distance away from headquarters.
“If managers don’t want to answer questions, they’ll make it harder for shareholders to attend,” Li said.
The paper cites an example using meeting locations of TRW Automotive Holdings, an auto parts manufacturer. The company held its 2007 annual meeting in McAllen, Texas, over 1,400 miles away from its headquarter located just outside Detroit, and more than 300 miles from the nearest major airport. In 2006 and 2008 to 2010, the company held its meetings in New York City. Coincidentally, in 2007, the company’s stock price fell from $38.97 to $25.90.
“We’re surprised by just how far managers are going to avoid activists and shareholders,” Li said.
Company bylaws may specify that meetings must take place with a recurring date or location, but often times, the board of directors are given the flexibility in choosing the site of the meeting.
Li and Yermack found that seventy-one percent of shareholder meetings take place within five miles of the what the managers would refer to as the “home office,” while sixteen percent occur between five and fifty miles away. They also noticed that twenty-nine percent of annual meetings take place more than fifty miles from a major airport.
Li believes companies and managers should change their practices, making it easier for shareholders to attend these annual meetings, allowing voting to take place with a higher quorum.
“Companies should be holding annual meetings closer to home,” Li said. “ We will be glad to see a law coming that says companies should always hold meetings in a close proximity to its headquarters so that local shareholders and analysts can easily attend.”