Why your company holding its AGM in September may be a potential red flag

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Despite nudges from the regulators, many Indian companies continue to wait till the fag end of the period provided to them to hold their mandated annual general meeting.

For investors, that should be a large enough red flag, according to the Institutional Investor Advisory Services (IiAS), corporate governance and proxy advisory firm.

"Companies with weak performance wait till the last minute to hold their AGMs. Perhaps, companies hope that their shareholders may not focus on weak financial numbers as attention shifts to the new financial year’s performance," wrote Amit Tandon, founder and Managing Director, IiAS in a blog post on Thursday.

Starting April 2019, the capital markets regulator, SEBI requires top 100 listed companies to hold their annual general meeting within five months of closing of the previous financial year. The top 100 companies are determined on the basis of market capitalisation at the end of the previous financial year. The AGM is also supposed to be webcast by them.

That should be a signal to the wider universe on the importance of holding their annual general meetings early on after the closure of the financial year. Yet, as the IiAS research found that in 2019, the first year after these SEBI norms kicked in, out of the top 500 companies nearly a fifth (105) chose to hold their AGMs in the final weeks of September.

"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," said Tandon.

Further research shows that the late arrivals also show lower performance metrics. "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," the IiAS report observed.

This trend is corroborated by a few other observations:

* More loss-making companies hold their AGMs in September. In FY19, 40 of the top 500 companies made losses, and true to trend, 40% of these 40 held their AGMs in September

* The "dirty dozen" companies which were taken through the bankruptcy proceedings in the first tranche almost always held their AGMs in September in the period between 2014 and 2017.

For the top management of companies and their finance departments, timely discharge of their regulatory duties is now becoming de rigueur. Else, investors and governance advisory firms are watching. Very carefully.