Navigation: Previous Page | Contents | Next Page

Chapter Two - Issues

2.1      In evidence before the Committee, a number of issues were raised in relation to the proposed bill:

• the proposal to remove the "100 member rule" for calling general meetings;
• reduction to 20 of the threshold for listing resolutions for discussion at the annual general meeting;
• distribution of members statements;
• "cherry-picking" of proxy votes;
• alternative means of voting;
• the disclosure of proxy votes; and
• disclosure of information filed overseas.

2.2      This Chapter will consider each of these issues in turn.

Abolition of the "100 Member Rule"

2.3      Section 249D(1) of the Corporations Act 2001 states:

1. The directors of a company must call and arrange to hold a general meeting on the request of:
   1. members with at least 5% of the votes that may be cast at the general meeting; or
   2. at least 100 members who are entitled to vote at the general meeting.

2.4      Item 1 of Schedule 1 of the current bill proposes to replace that subsection with the following:

1. The directors of a company must call and arrange to hold a general meeting on the request of members with at least 5% of the votes that may be cast at the general meeting.

2.5      The effect of this amendment is to remove the "100 member rule" currently set out in s.249D(1)(b) while leaving the "5% rule" currently set out in s.249D(1)(a) intact.

2.6      Treasury's stated reasons for proposing this change are:

The 100 member rule allows relatively small groups of members to requisition general meetings of large companies. This can expose large companies (and, indirectly, their members) to significant costs.

A particular concern is that the rule allows for special interest groups to threaten the imposition of large and unnecessary costs on companies, for publicity purposes or to influence negotiations with the company, to the detriment of the vast majority of members. The 100 member rule has been criticised for giving disproportionate influence to minority shareholders, failing to recognise the substantial size differences between companies and for being out of step with comparative laws in other countries.[1]

2.7      In its submission, NRMA outlined the impact such "disproportionate influence" can have on its business:

The NRMA's repeated experience over recent years has seen a situation where 0.005% of members are able to call a special meeting at the cost of approximately $4 million. This circumstance has occurred 7 times in the past 3 years. Clearly this continues to pose a significant distraction to both the Board and Management's operation of the business.

These costs become even greater when the NRMA is forced to pursue legal proceedings with respect to the validity of proposed resolutions. This is clearly untenable.

Of even greater concern is that none of the 10 or so resolutions voted on by the members were passed by the requisite majority. This demonstrates a shortcoming that provides an opportunity for a small number of disaffected members to call a meeting that does not have support of the wider membership.[2]

2.8      In previous reports, this Committee has called for the abolition of the 100 member rule, essentially for the reasons outlined above by Treasury. Recommendation 24 of the Committee's CLERP 9 Report was as follows:

The Committee recommends that the 100 member rule for the requisitioning of a general meeting be removed from section 249D of the Corporations Act.[3]

2.9      Submissions and evidence before the Committee during this inquiry generally supported the removal of the 100 member rule. For instance, Chartered Secretaries Australia stated:

We strongly support the repeal of the 100-member rule and the maintenance of the requirement that shareholders requesting a meeting should have at least five per cent (5%) of the votes that may be cast. CSA has made many submissions on this matter and has supported a range of different proposals designed to provide the necessary balance between allowing shareholders to participate in meetings of the company and the need to control the costs of organising shareholder meetings. This simple five per cent (5%) proposal is a welcome solution, that operates relative to the size of the company, without the complications of calculating tiered and mathematical solutions produced in the past.[4]

2.10                 Support for this amendment did not just come from groups representing large companies. The Australian Shareholders Association, for instance, stated:

Requiring five per cent of total voting shares to requisition a special general meeting is a reasonable balance of the rights of shareholders to have matters of general shareholder interest addressed with the importance of allowing directors to effectively run the company.

In its forty-year history, the Australian Shareholders' Association has not used the powers under this section. It has only ventured to call for a special general meeting in one case, using the five per cent rule, which did not come to fruition as the director whose resignation was sought stepped down. Under this amendment the ASA would seek support of institutions or major investors in order to collect signatures representing five per cent of the register for issues deemed sufficiently urgent to require a special meeting to address them.[5]

2.11                 However, support for the amendment was not universal. A number of submissions, while acknowledging that the current 100 member rule requires change, proposed reform rather than repeal. These proposals included:

• a "modified square root" proposal, whereby the number of members required to call a meeting would be the square root of the number of all votes which could be cast at the meeting, with the additional proviso that each individual shareholder calling for the meeting should hold $1000 worth of shares;[6]
• a sliding percentage requirement, where the required percentage increases as the size of the entity increases;[7] and
• retaining the 100 member rule but requiring that all requisitioning shareholders "must have held shares of a certain monetary value for at least 1 year prior to the meeting request";[8]

2.12                 Further, a number of submissions opposed the amendment outright, supporting the subsection in its current form. The Australian Council of Trade Unions, for instance, stated:

The ACTU acknowledges the legitimate concern of business to manage the costs (in terms of money and human resources) to companies in the calling and hosting of special or extraordinary general meetings of shareholders, and that these should not be arranged to address frivolous matters.

Nonetheless it is our view that the 100-member threshold constitutes a significant hurdle, which gave companies sufficient protection against meetings being called on frivolous or vexatious grounds.[9]

2.13                 Two submitters opposed the amendment on the basis that there is no history of the 100 member rule being abused:

First, it is my submission that the proposed amendment is unnecessary. There is no evidence of widespread abuse of this right to request a general meeting in Australian companies. Indeed, the evidence suggests that section 249D(1) has been used only infrequently.[10]

2.14                 The Committee remains of the view that the 100 member rule should be abolished. While there is little history of the rule being abused, its potential for abuse remains clear. In the Committee's view, it is not necessary for parliament to wait until some quota of abuses is observed, before reforming the provision. The Committee considers that sufficient other mechanisms exist for smaller shareholders to question company directors and influence company policy. Furthermore, the Committee is aware that any vexatious use of the 100 member rule will result in substantial costs to the company, and that these must be reflected in poorer investment returns for shareholders.

2.15                 The Committee notes the proposals for reforming the rule rather than repealing it. However, the Committee considers that the 5% rule alone is sufficient to ensure that, in the extraordinary circumstances which would justify an extraordinary meeting, shareholders could requisition a meeting. This would probably (for practical purposes) require the recruitment of at least one institutional shareholder – and this in itself provides a safeguard against frivolous use of s. 249D.

2.16                 Accordingly, the Committee supports item 1 of schedule 1 of the proposed bill.

The 100 member rule and mutuals

2.17                 A number of submitters and witnesses drew the Committee's attention to the impact which the abolition of the hundred member rule would have on mutuals. In mutuals, each shareholder has an identical shareholding. Unlike other listed companies, mutuals do not have large private or institutional investors holding a substantial proportion of the shares (and therefore votes).   Consequently, for a large mutual, meeting the 5% threshold would be virtually impossible:

To contact 5% of members to call a meeting in a large mutual is a virtual impossibility without a large public advertising campaign or direct mail-out by the requisitioners, using a copy of the members’ register obtained under s.173 of the Corporations Act. Such a campaign may itself be destabilizing for a financial institution, even before the meeting itself is held.[11]

2.18                 This view accords with a view previously expressed (but not substantially discussed) by this Committee.[12] Macquarie Bank submitted that, as a consequence, Mutuals should either retain the hundred member rule, or retain the hundred member rule and add a financial bond to prevent vexatious use of the provision.[13]

2.19                 Witnesses from Treasury acknowledged that the position of mutuals had not received specific consideration while the proposed bill was being drafted. However, Treasury argued that making an exception for mutuals would be problematic:

One of the problems we encountered when first looking at that was that this problem with the 100-member rule being abused is not just limited to mutuals; potentially it can affect a lot of other large corporates. Also, there is no definition of mutual in the act. A lot of people use the term, but it may be problematic to invent a definition just for this purpose. Another issue is that the policy justification that we are using to support the removal of the rule does not just cover mutuals. The rule would still be out of step with comparable overseas jurisdictions for corporates. We thought that by just trying to look for a solution for mutuals it would be imperfect.[14]

2.20                 The Committee is not convinced by Treasury's evidence. If the bill in its current form were passed, it would clearly have the unintended consequence of essentially preventing members of mutuals from calling an extraordinary general meeting. While an amendment to change the meeting requisition requirements for mutuals may require additional drafting, and the insertion of a new definition into the Act, these difficulties do not seem insurmountable. It may, for instance, be possible to apply the new provision to "a company where all shareholders hold an equal number of shares" rather than defining mutuals per se.

2.21                 The Committee agrees with submissions that the 5% threshold is too high for larger mutuals, and would effectively prevent shareholders from requesitioning a meeting. However, the Committee considers that, particularly for larger mutuals, the 100 member threshold is too low. For that reason, the Committee supports the bill's abolition of the hundred member threshold for mutuals.

2.22                 The Committee considers that the best approach for mutuals is to strike a middle path between the 5% and 100 member thresholds.  A threshold of 1% would be a substantial reduction from 5%, yet would prevent extremely small numbers of members from calling extraordinary meetings for vexatious reasons.

Recommendation 1

2.23       The Committee recommends that the bill be amended to insert a section which provides that, for mutuals, the threshold for calling an general meeting should be 1% of the total number of votes able to be cast at the general meeting;

The 100 Member Rule and Managed Investment Funds

2.24                 Chapter 5C of the Corporations Act outlines provisions for Managed Investment Funds. Under Chapter 5C, the members of such funds have a range of rights (such as the removal of the scheme's responsible entity – s.601FM or the winding up of the scheme – s.601NB) which may be exercised at a members' meeting.

2.25                 A member's meeting may be called by members in accordance with section 252B of the Corporations Act, which sets out the same tests as currently exist for companies in s.249D: meetings can either be called by members with 5% of the votes to be cast; or by 100 members.

2.26                 While the proposed bill would remove the 100 member rule for companies, it would not do so for managed investment funds. This omission was noted by representatives from the Investment and Financial Services Association:

The draft legislation does not touch at all the provisions in relation to managed investment schemes, either for calling a meeting or putting resolutions on the agenda of a meeting.[15]

When I raised the matter with Treasury officials, when I initially read the bill, I simply assumed that the provisions would extend across both companies and managed investments. It was only when I looked at the details of the bill that I realised they did not. When I raised it with Treasury they indicated to me that most of the focus in the past years, in terms of problems with these provisions, had come from companies, hence their focus on companies.[16]

2.27                 Blake Dawson Waldron Lawyers supported the view that the amendment to s.249D should be accompanied by an identical amendment to s.252B:

... any changes to company meeting provisions in the Corporations Act should flow through to the "mirror image" provisions for meetings of managed investment schemes. Without flow through, there will be arbitrary differences between the provisions which will tend to cause confusion among the investing public. This will be particularly confusing for members of the many stapled entities listed on the Australian Stock Exchange whose securities comprise both a share in a company and a unit in a managed investment scheme.[17]

2.28                 The Committee supports this view. While Treasury's focus on companies is understandable, it remains deirable for the provisions relating to companies, and to managed investment funds, to remain consistent.

Recommendation 2

2.29       The Committee recommends that the bill be amended to remove the 100 member rule for managed investment funds.

Threshold for listing members resolutions at a general meeting

2.30                 Section 249N(1) of the Corporations Act 2001 states:

1. The following members may give a company notice of a resolution that they propose to move at a general meeting:
   1. members with at least 5% of the votes that may be cast on the resolution; or
   2. at least 100 members who are entitled to vote as a general meeting.

2.31                 Item 3 of Schedule 1 of the proposed bill makes a simple numerical change to s.249N(1)(b), substituting "20" for "100".

2.32                 Treasury's reasons for proposing this change are:

This measure will make it significantly easier for shareholders to add resolutions to the agenda of the AGM as the support of only 20 shareholders is needed. This will enhance shareholders' ability to participate in Annual General Meetings and question their company's board and management without imposing significant costs on the company as no new meeting would need to be called and held.[18]

2.33                 As was noted by some witnesses in oral evidence, it does not appear that any groups actually called or campaigned for this amendment.[19] Further, there does not appear to be significant reason for the new threshold to be 20.[20] It appears that this amendment was developed within Treasury as a form of regulatory compensation to shareholders for the loss of the 100 member rule, discussed above.

2.34                 The Committee supports Treasury's intentions in this case. It is reassuring to see Treasury attempting to counterbalance necessary reforms with measures to increase the participation of shareholders. Unfortunately, the proposed amendment may have a perverse effect, by allowing a tiny minority of shareholders to flood the annual general meeting with resolutions. If a substantial quantity of these "campaign" resolutions is received, this may in fact eliminate the opportunity for other shareholders to place their resolutions on the agenda and have them debated and decided.

2.35                 In its submission, Telstra stated:

There is a real risk that if small interest groups use amended section 249N to put numerous additional resolutions before the company's annual general meeting that mainstream shareholders will choose not to attend annual general meetings and the meetings will become dominated by fringe issues.[21]

2.36                 It was also suggested that a threshold as low as 20 could easily be subverted by a single shareholder splitting their interest:

... we believe 20 shareholders is an extremely low number to get a shareholder proposal up onto the notice paper. Given the ability of any holder to share-split now, in essence this proposal could allow one holder to split his or her holding—or its holding, in the case of a corporate entity—into 20 different parcels and therefore satisfy this proposal. If that were the case, one holder would be able to legally split—as they are—their holdings into 20 different parcels and therefore satisfy this 20-member test. It just seems ridiculous, really, for essentially one person or one holder to be able to split their holding into 20 different parcels to satisfy the test. Also, there is no limitation or minimum threshold on the size of holding that the 20 holders have or on the duration of their holdings et cetera. There are those sorts of issues as well.[22]

2.37                 While opposition to this proposal was widespread, it was not unanimous. A number of submitters supported the proposal, arguing that it would enhance shareholder participation at the annual general meeting.[23]

2.38                 One submitter, the Business Council of Australia, argued that the current 100 member threshold is insufficient:

To overcome the potential for a small parcel of shares to be assigned across 100 individuals to satisfy the threshold, the BCA also believes the Act should be amended to require the 100 shareholders to each hold a minimum quantity of shares, such as a marketable parcel.[24]

2.39                 While the Committee does not support the BCA's argument for the threshold to be tightened, neither does the Committee support lowering the threshold to 20. Twenty members, in proportion to the number of shareholders with an interest in most public companies, represents a negligible amount. The danger raised by submitters, of annual general meetings being hijacked to the detriment of the company and of mainstream shareholders, is genuine and should be avoided.

Recommendation 3

2.40       The Committee recommends that item 3 of schedule 1 of the bill should be omitted.

2.41                 The Committee noted the proposal made by the National Institute of Accountants, that the proposed 20 member threshold should have a twelve month sunset clause.[25] While the Committee does not support that specific proposal, the Committee agrees that, in the event that the threshold under s. 249N(1)(b) is reduced, a review will be necessary. This Committee is the obvious body to conduct such a review.

Recommendation 4

2.42       The Committee recommends that, in the event that recommendation 2 is not enacted, the Parliamentary Joint Committee on Corporations and Financial Services should conduct an inquiry into the operation of s.249N after the proposed amendment has been in operation for one year.

Distribution of Members' Statements

2.43                 Section 249P of the Corporations Act 2001 states:

1. Members may request a company to give to all its members a statement provided by the members making the request ...
2. The request must be made by:
   1. members with at least 5% of the votes of the votes that may be cast on the resolution; or
   2. at least 100 members who are entitled to vote at the meeting.

2.44                 Item 5 of the proposed bill would reduce the threshold in section 249P(2)(b) from 100 to 20.

2.45                 The reason for this change was similar to that outlined above for s.249N. The explanatory memorandum states:

This reduction will encourage members to utilise this provision to alert other members to issues, and gain support for resolutions that may have been proposed under section 249N.[26]

2.46                 A number of witnesses and submitters opposed this measure, for two broad reasons:

• the additional cost of distributing Members' statements; and
• potential for statements to include defamatory material.

2.47                 The Securities Institute of Australia, for example, stated:

While the SIA acknowledges that the proposal aims to bring issues to the attention of the company and shareholders, and in particular to provide unsophisticated shareholders with a better understanding of the potential complexities surrounding the resolution or matter, we believe this change may be subject to abuse by a very small minority of shareholders with vested interests. We are concerned that the proposal may result in the dissemination of frivolous, vexatious or defamatory statements.[27]

2.48                 The Insurance Australia Group stated:

We do not agree that the proposed change does not create significant cost for shareholders. The cost of adding even a single 1000-word statement to an AGM pack of materials is significant for large companies such as IAG.[28]

2.49                 The Committee is unconvinced by the cost-related arguments against the proposed amendment. Shareholders should be able to exercise some rights of ownership. Members statements stand in a different position to AGM resolutions or the requisitioning of an extraordinary AGM, because they need not be justified by a level of voting support at the subsequent meeting. Companies should be able to tolerate, accommodate, and even encourage voices of dissent among their owners. It should be noted that if the Committee's recommendation 2 is accepted, the number of members statements relating to resolutions is unlikely to be any higher than at present.

2.50                 However, the Committee is prepared to consider some accommodation of the concerns of industry, to contain the company's exposure to additional costs, without silencing voices of dissent.  Recommendation 5 is intended to have this effect.

Recommendation 5

2.51       The Committee recommends that the proposed bill be amended to provide that members statements proposed by 20 or more, but less than 100, shareholders should be:

• no more than one page in length; and
• received by the company by a suitable date, in order to enable distribution with the package of AGM materials.

2.52                 Several submitters proposed that, if s.249P is amended to reduce the threshold to 20, the Company should be entitled to refuse to distribute members statements which were irrelevant or inappropriate:

If the "20 member rule" were to be adopted, then these carveouts should be expanded to address issues of irrelevance and inappropriateness, including any members' resolution or statement which seeks to fetter the proper discretion of a board. Given that the management of a company is vested in its board of directors, we believe that there should be express carveouts for these matters.[29]

2.53                 The Committee does not support this proposal for two reasons. First, such a carve-out would lead to a great deal of uncertainty as to how "irrelevant" or "inappropriate" should be defined. The use of such concepts would almost inevitably lead to conflict, and probably legal action, between companies and shareholders whose members' statements had been refused publication. Second, the Committee considers that s.249P is an accountability measure, designed to make company directors accountable to the owners of the company. To then give those directors an effective veto over the publication of members' statements would seriously compromise the effectiveness of the section, as the veto could be used to quash resolutions critical of the board.

2.54                 The question of defamation, however, raises a further concern. Company directors are already entitled to refuse to distribute a members statement if it is defamatory (s.249P(9)(a)). The proposed amendment to s.249P should therefore pose no direct difficulty for companies. However, the proposal may have implications for the Australian Stock Exchange (ASX). In its submission, the ASX stated:

ASX has concerns that the potential increase in the number of members’ statements may result in increased exposure of ASX to the risk of actions for defamation because:

• Listed companies are required to release communications with shareholders to the market (Listing Rule 3.17);
• ASX will ‘publish’ members’ statements over its company announcements platform;
• Members’ statements are outside the usual ambit of continuous disclosure. They are not drafted by the company, will not necessarily be ‘material’ in terms of the Listing Rule 3.1 or s674(2) of the Corporations Act and are more likely to contain statements which could expose ASX to the risk of allegations of defamation than those drafted by the company.
• The operation of s1100B of the Corporations Act in providing qualified privilege to ASX is uncertain. In particular, it is not clear that the protection would extend to members’ statements released under Listing Rule 3.17. It may be arguable for example that such information is not “necessary to ensure that the market operates in a fair, orderly and transparent way”.[30]

2.55                 The Committee considers that this issue relates more to s.1100B than to s.249P, and should not be an impediment to the proposed changes. The Australian Stock Exchange, when circulating material which has been published by companies in accordance with s.249P, should receive the full protection of s.1100B. Alternatively, the ASX, when republishing material which has been published by companies in accordance with s.249P, should be regarded as undertaking innocent dissemination - similar to the position of a newsagent who, by distributing newspapers containing defamatory material, "republishes" the defamatory material without attracting liability in tort.[31]

Recommendation 6

2.56       The Committee recommends that the Treasurer review the protection provided to the Australian Stock Exchange under s.1100B of the Corporations Act 2001.

"Cherry-Picking" of Proxy Votes

2.57                 Section 250A of the Corporations Act 2001 addresses the proxy voting process at company meetings. Currently, the Chair is required to exercise any proxies they have on a poll (though not a show of hands), and to vote the proxies according to the instructions they have received. However, other proxyholders are not under that same obligation.

2.58                 This has given rise to concerns about the 'cherry-picking' of proxy votes: the practice of withholding some or all proxy votes where they do not reflect the position of the proxyholder, whilst casting those that do. In a previous report, this Committee recommended that:

...the law be amended to ensure that the voting intentions of shareholders through their proxyholder are carried out according to their instruction.[32]

2.59                 The proposed bill addresses this problem in Item 7 of Schedule 1, which extends the Chair's obligation to vote proxies according to instruction to all proxyholders, where they vote. It states:

(d) if the proxy is not the chair – the proxy need not vote on a poll, but if the proxy votes on the poll in any capacity, the proxy must vote on the poll in the exercise of the proxy appointment and must vote in the way specified in the proxy appointment.

2.60                 The evidence received by the Committee recognised the problem of cherry-picking of proxies. The Australian Shareholders' Association reflected the general feeling when they stated:

The awarding of a proxy is a responsibility that should be taken seriously and cherry-picking of proxy votes is unacceptable.[33]

2.61                 Consequently, the proposed amendment was supported insofar as it addresses the problem. There was some feeling, however, that it offers only a partial solution as it does not oblige the proxy holder to vote but only states that proxies must be voted as per instruction where voted. Several organisations wanted the amendment to go further and make voting the proxies obligatory.[34] The Explanatory Memorandum accompanying the Amendment Bill notes that a blanket obligation to vote a proxy and to vote it as intended, as opposed to the obligation to vote a proxy as intended where it is voted, was considered too onerous. Notably, there may be circumstances where an individual is unaware of their status as proxyholder, and other mitigating circumstances which prevent the proxyholder voting in a poll. As the proposed amendment includes penalties for cherry-picking, it imperative that the proxyholder should not be penalised where they were unable to vote. Consequently, the Committee supports this amendment.

Alternative means of voting at general meetings

2.62                 Consideration of proxy voting led the Committee to consider means by which shareholders not attending meetings might be able to vote, other than by nominating a proxy.

2.63                 Direct voting could take a number of forms, with votes being cast by post or fax, phone, or electronically. Direct voting would remove the uncertainty associated with the appointment and instruction of proxies. Consequently, problems such as the cherry-picking could be substantially lessened by a greater use of direct voting. And a clear audit trail is established by direct voting, which increases the transparency and confidence in the process.

2.64                 There was broad support for a greater use of direct voting, though some reservations were noted. In advocating a greater emphasis on direct voting, the Australasian Investor Relations Association (AIRA) outlined the following benefits: it avoids the problems associated with proxy voting; it is simpler, more efficient and more transparent; it encourages the participation of those who cannot attend meetings to a greater degree than the existing proxy process; and it ensure that results of resolutions better reflect the shareholdings of investors.[35]

2.65                 Given the significant increase in the use of communications technology in all areas of commerce, not least share trading, its slow adoption in the voting process is conspicuous. Yet the technology clearly exists to allow its far greater use, evidenced by the experiences in the countries such as the UK and USA. Mr Munchenberg, representing the Business Council of Australia (BCA), predicted an "inevitable trend in that sort of direction"[36] despite a slow start in Australia.

2.66                 Considerable attention has been devoted to the issue of electronic voting.[37] In his 2004 review of impediments to share voting in the UK, Paul Myners concluded that:

Electronic voting remains the key to a more efficient voting system, and all parties – issuers, institutional investors and the intermediaries – need to make conscious efforts to introduce electronic voting capabilities.[38]

2.67                 In a subsequent report, he has reported a significant increase in electronic voting capabilities, with the Institutional Shareholders' Committee (ISC) encouraging their members to facilitate it and CREST, the UK Central Securities Depository which accounts for some 85% of UK-issued share capital, reported significant growth in the use of its electronic proxy voting facilities.[39]

2.68                 Whilst the benefits of direct or electronic proxy voting are acknowledged, there were concerns expressed about the possible disenfranchisement of shareholders without access to electronic communication.[40] However, processes need not be limited to on-line voting and the technology already exists to allow phone voting as well, for instance: many of the bodies offering on-line proxy voting already also offer phone voting.

2.69                 Concerns have also been raised about the implications of greater moves to direct voting on the conduct of company meetings. In order to ensure that direct votes are properly counted, the Investment and Financial Services Association (IFSA) suggest that resolutions be decided by polls rather than by a show of hands, which effectively disenfranchises those shareholders not present. They suggest that the show of hands be confined to votes on the conduct of the meeting rather than substantive matters.[41] However, there was concern that this would limit the value of the meeting as a forum where matters were raised and questions answered. Mr Wilson, representing the Australian Shareholders' Association (ASA), emphasised that many would want to wait until hearing the debate at the meeting before determining how to vote, or to appoint a proxy holder to do this on their behalf and emphasised the efficiency of voting via a show of hands at meetings.[42] It should be noted, though, that direct voting is not proposed as a replacement for the proxy process or for the AGM but as an additional means to facilitate shareholder engagement.[43]

2.70                 Interest in direct voting is clearly growing. Even relatively sceptical organisations acknowledged that it "could be a good thing – it needs further investigation".[44]

Recommendation 7

2.71       The Committee recommends that the Treasurer investigate direct voting, how its greater use might be encouraged, and the full implications of its widespread use.

Disclosure of proxy votes

2.72                 Item 9 of Schedule 1 of the Exposure Draft repeals section 250J(1A) of the Corporations Act 2001 which requires that, before a vote is taken, the Chair must inform the meeting of the number of proxy votes received and how they are to be cast. The Explanatory Memorandum explains that this is because the inherent uncertainty surrounding proxy voting means that accuracy of disclosure is dubious and can, at best, only be indicative.[45]

2.73                 The issue of the timing of disclosure of proxies is evidently one around which there is little agreement. Even in supporting the amendment, the BCA acknowledged that, within their membership:

there is a considerable division of opinion on when proxy votes should be revealed.[46]

2.74                 Disclosing proxy votes before discussions on a resolution, according to some, stymies debate at the meeting. Whilst this debate may, ultimately, not directly affect the outcome of the vote, it provides a valuable opportunity to ask pertinent questions, express opinions, and give matters of a concern a hearing.[47] Removing this debate would give shareholders the impression that their views were not valuable or worthy of discussion.

2.75                 The alternative view is that, by not disclosing the proxy tallies before debate, the chair is giving the false expectation that the debate can somehow affect a decision that is, in effect, already decided.[48]

2.76                 But, regardless of the perspective adopted on the timing of disclosure, and the acknowledgement of the importance of disclosure at some stage, there was support for the amendment repealing the requirement. Given the degree of disagreement, the BCA argued that this was not something that should be mandated by legislation, but should be left to shareholders to decide, along with other matters of procedure at meetings.[49]

2.77                 The Committee agrees that the exact timing of disclosure should not be dictated by legislation and so support the amendment. This should not, however, be seen as diminishing the importance of disclosure: full and timely disclosure of voting remains central to good corporate governance. It was suggested by the BCA that disclosure of proxies might be conducted after discussion but before a poll, thus encouraging debate but allowing a vote in full knowledge of the proxies already cast.

2.78                 The Committee agrees that this might be a sensible compromise between the positions outlined. However, this should be something for companies and their shareholders to decide upon.

Disclosure of information filed overseas

2.79                 Section 323DA of the Corporations Act 2001 states:

(1) A company that discloses information to, or as required by:

(a) the Securities and Exchange Commission of the United States of America; or
(b) the New York Stock Exchange; or
(c) a financial market in a foreign country if that financial market is prescribed by regulations made for the purposes of this paragraph;

must disclose that information in English to each relevant market operator, if the company is listed on the next business day after doing so.

2.80                 In its report entitled Report on Matters Arising from the Company Law Review Act 1998 this Committee recommended that s.323DA (of the then Corporations Law) should be deleted. The report stated:

The PJSC concluded that the provision was superfluous and included a number of potentially undesirable consequences. The Listing Rules of the ASX already require the disclosure of any information which would have a material effect on the price or value of company securities. Any additional information disclosed to foreign exchanges would not be price sensitive and would not be material to the Australian market. Therefore there seems little reason for the provision.[50]

2.81                 Item 12 of schedule 1 of the proposed bill adopts the Committee's previous recommendations. However, a number of submitters and witnesses opposed the repeal of s.323DA.  The Commercial Law Association stated:

the removal of this provision would be a step backwards in the Australian disclosure regime and would be a step consciously and deliberately moving out of alignment with leading international markets and the trends in these markets. Such a step would be in sharp contrast to recent corporate law amendments that have been aimed at placing Australian market players in a significantly more competitive position, and aligning the Australian market with global capital markets.[51]

2.82                 Mr Ted Rofe argued that "Investors in companies listed on the ASX should not be forced to rely on third parties to be fully informed in relation to the companies in which they invest."[52]

2.83                 The ACTU stated:

It is our view that many shareholders do not have access to information that is disclosed to foreign securities exchanges. As it is not a significant burden upon corporations to disclose information in Australia that is required of them by foreign regulators, the ACTU submits that on balance Section 323DA should be retained.[53]

2.84                 The Committee remains of the view that s. 323DA should be repealed. Any requirement for the disclosure in Australia of information which is required to be disclosed to overseas markets, should be found in the ASX listing rules, not in the Corporations Act. The Committee notes that the repeal of section 323DA need not mean that Australian investors lose access to information disclosed overseas. With the prevalence of the internet as a business tool, information filed overseas is readily available to Australian investors. Furthermore, it should be remembered that the ASX listing rules and the Corporations Act only provide minimum requirements for disclosure. There is nothing to prevent companies voluntarily disclosing such information to their shareholders.

2.85                 Consequently, the Committee supports item 12 of schedule 1 of the proposed bill.

Senator Grant Chapman

Chairman

Navigation: Previous Page | Contents | Next Page