Agenda Item of the Month: Shareholder Meetings

The objective of AABD's Agenda of the Month is to expand the discussion of the Board of Directors beyond the routine monthly subject matter.

This month's agenda addresses shareholder meetings.

Shareholder meetings are around the corner for most banks. Is your bank prepared?

Since April is the month that many bank shareholder meetings are held, February's Board meeting often is used to pass resolutions relating to the meeting.

Most banks have stock resolutions that they have used time and time again. All they do every year is fill in the blanks. These resolutions address the time and date of the meeting, those being nominated as directors, appointment of the Chairman for the shareholder meeting, proxies and judges of election, and appointment of the outside accounting firm that will conduct the certified audit, subject to shareholder approval. The resolutions also normally direct and authorize management to take the steps necessary to notify shareholders of the meeting and to conduct the meeting as directed by the board.

Sometimes, the annual meeting is also used to amend the articles of incorporation or association of the bank, or to approve stock option plans for directors, officers, and employees. For basic changes in the Articles or Charter, or for the details of a stock option plan, it is advisable that the Board or a committee of the Board to have reviewed these proposed changes prior to the February meeting. Nonetheless, if there has not been any previous review of the proposed changes, it is possible for the Board to thoroughly review such proposals at the February board meeting and adopt them, subject to shareholder approval, if there has been sufficient management support and explanation of the changes, and the board has ample time to review the proposals and ask questions of management abut them.

The nomination process should have begun long before the February board meeting. In 2003, one of the issues for those banks and bank holding companies that are reporting to the SEC is whether they have a "financial expert" on the board who is serving or will serve as an audit committee member. The SEC recently finalized its regulations defining "financial expert", and has given reporting companies that are on a calendar year accounting basis until the filing of their 10K for the calendar year 2003 to disclose whether they have a financial expert on the board who serves on the audit committee, and if not, why not. Although not required to have or appoint a "financial expert" to serve on its audit committee, the Board should consider nominating one if it does not have one, or consider the ramifications of not having one on the audit committee and disclosing that it does not have one. There is also time for the board to appoint a director subsequent to the shareholder meeting who is a financial expert to serve on the audit committee prior to the required disclosures. For more information on the SEC rules regarding "financial experts", please refer to AABD's website at www.aabd.org.

Now is also the time to review any proxy material that will be mailed to shareholders. Much of this work is delegated to management and the counsel and accountants for the bank. However, the Board has a role in reviewing the materials as well as establishing the guidelines under which such proxy materials are prepared.

For example, most reporting companies are required to prepare proxy materials in accordance with the regulations of the SEC or to its primary bank regulator. But what if your company is not reporting? Neither the SEC rules nor the banking agency rules apply. However, does the Board want proxy materials to be prepared that meet the SEC rule requirements anyway, or at least provide the shareholders with sufficient information to make an informed decision on how to vote? Many non-reporting banks and bank holding companies prepare detailed proxy statements for their shareholders because they want their shareholders to be well informed, and because they have concerns whether the company is vulnerable to a shareholder lawsuit if it turns out that shareholder approval was based on false or incomplete information.

Another aspect of a shareholder meeting is the conduct at the meeting itself. Most companies prepare a script for the meeting. It is advisable to have a script and a set of rules governing the meeting. The company's bylaws should set forth the procedures applicable at shareholder meetings (the best ones allow the Board to establish such procedures in their discretion, and to have the Board designate the Chairman, not have it open for discussion at the shareholder meeting. You do not want to adopt Roberts Rules, which are old English parliamentary rules that are difficult to apply to shareholder meetings.