Should You Shun Companies That Reject Shareholder Input?

Given that shareholders are part-owners of the companies they buy, you might think company management would welcome their questions and critiques. But that's not always the case. Some companies encourage comments from shareholders, while others -- including some of the biggest consumer names you know -- nearly shut them out entirely.

At one end of the spectrum is Walmart (WMT), which at its most recent annual meeting allocated roughly 15 minutes to shareholder questions and concerns during its approximately four-hour meeting.

It's not that there wasn't much to talk about, either.

During that meeting, company leadership skirted the big issues -- specifically, the risks associated with recent scandals, including Walmart's alleged violations of the Foreign Corrupt Practices Act and its failure to ensure safe working conditions in Bangladeshi supplier factories.

However, Walmart did find time for comments from Hugh Jackman and Tom Cruise, and musical performances by John Legend, Kelly Clarkson, and Jennifer Hudson.

Walmart is not the worst offender when it comes to its reluctance to allow shareholders to speak.

In this year's annual meeting, FirstEnergy (FE) allotted no time for shareholders to pose questions or concerns. In fact, its entire meeting lasted a mere 16 minutes, with CEO Anthony J. Alexander making no comments whatsoever.

The Other End of the Spectrum

In contrast to Walmart's and FirstEnergy's annual meeting agendas is Berkshire Hathaway's (BRK.A, BRK.B).

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At its annual meeting last month, Berkshire allotted six hours to questions from the audience. Even more striking, CEO Warren Buffett encouraged tough questions by inviting hedge fund manager Doug Kass, who is shorting Berkshire's stock, to weigh in with his thoughts during the meeting. Buffet also invited three financial journalists to each select the six "most interesting and important" questions shareholders submitted to them by email.

In his annual letter to shareholders, Buffett states, "Neither [Vice Chairman] Charlie [Munger] nor I will get so much as a clue about the questions to be asked. We know the journalists and analysts will come up with some tough ones, and that's the way we like it."

A More Common Approach

If Walmart, FirstEnergy, and Berkshire Hathaway represent opposite extremes in a broad spectrum of approaches to shareholder questions and concerns, then what's a more typical approach?

For the sake of comparison, let's consider some of the biggest consumer companies in the U.S.

• Colgate-Palmolive (CL) gave shareholders around 35 minutes to address company leadership.

• McDonald's (MCD) allotted around 30 minutes for shareholders to pose questions and voice concerns.

• Coca-Cola (KO) dedicated around 33 minutes to shareholder comments and questions.

During these question-and-answer sessions, shareholders covered wide-ranging issues, including company innovation, growth prospects, public health, and environmental issues -- all topics that help all investors assess whether or not a company deserves a place in their portfolios.

What Does This Mean for You?

As you choose which stocks to buy, it can be useful to consider how businesses interact with their investors. If you wish to invest in companies that welcome shareholder questions and concerns, it's useful to pay attention to which ones offer shareholders and critics a meaningful forum in which to engage and challenge leadership.

After all, shareholders are part-owners of the companies in which they invest. It's not a good sign if they're shut out of the very meeting that is designed to bring everyone into the fold.

Do you prefer to invest in companies that give you a forum to question and challenge management behavior, or do you think such activities waste management's time? Chime in below!

Motley Fool Contributor M. Joy Hayes, Ph.D. (@JoyofEthics) is the Principal at ethics consulting firm Courageous Ethics. She owns shares in Berkshire Hathaway and McDonald's. The Motley Fool recommends Berkshire Hathaway, Coca-Cola and McDonald's. The Motley Fool owns shares of Berkshire Hathaway and McDonald's.

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