Shareholder Meetings: Reform Needed to Question Time and Calling Meetings
Shareholder Meetings: Reform Needed to Question Time and Calling Meetings
The Abbott Government has recently announced the proposed removal of the "100 member rule" from the Corporations Act 2001 (Cth) (Corporations Act) and accordingly introduced the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 into the Federal Parliament as part of its so called "war on red tape".
In large corporations, 100 members may hold a very small percentage of voting shares - often below one per cent. One of the key drivers for change was the abuse of the power by activists, seeking to use the right to call a general meeting in furtherance of an ideological agenda rarely held by the majority of shareholders, and thereby putting the company to enormous expense and diversion of management and Board focus. The 100 member rule was therefore regarded as placing too much power in the hands of a small grouping of shareholders - particularly where the motives may be to abuse the right.
By way of example, activists targeted the AGM of AGL Energy, not only to rally outside the meeting venue to protest against the company's Gloucester CSG project, but also from the floor of the meeting. It was reported that some activists were AGL shareholders or held proxy votes and went to the AGM as their chance to take their message directly to the company. The AGL Energy chairman and chief executive faced heated questioning.
At Whitehaven Coal the AGM was more muted. Greenpeace had a news conference in an office adjoining the AGM venue and distributed a document maligning Whitehaven Coal. The questions from the floor asked by activists in the guise of shareholders did not clog the meeting. It is understood Greenpeace and other activists purchased a couple of hundred shares in order to gain entry to the AGM.
Whilst some may argue it is still important for shareholders to have the opportunity to ask questions and comment on various matters of the company, it is not acceptable for such a right to be abused by those in the small minority who are more interested in using the forum as a platform to push their own ideological agenda and generate free publicity.
Shareholders of listed companies currently enjoy the benefit of the following rights to information:
inspect the company's books1 - "books" are defined broadly in s9 of the Corporations Act to be a register, any other record of information, financial reports or financial records and a document although some exclusions do apply. A shareholder can apply to the court for an order to inspect the
1 Corporations Act 2001 (Cth), s 247A
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company's books. However, the court will only grant an order where the shareholder is acting in good faith and the inspection is for a proper purpose and is at the court's discretion;
copies of documents and resolutions lodged with the Australian Securities and Investment Commission which relate to the division and conversion of shares and which affect rights attaching to shares and members2;
access to minutes of members' meetings and resolutions of members passed without meetings3;
copy of the company's financial report, directors' report and auditor's report at the company's AGM4; and
continuous and periodic disclosure by the company5.
In addition to the above, companies may also choose to disseminate additional information. This this is generally by sending letters to shareholders or posting information on the company website.
Shareholders currently have the right to ask questions regarding certain matters of the company at the company's AGM:
submit a written question to the company's auditor prior to the company's AGM6;
ask questions or make comments on company management or the remuneration report at the company's AGM7; and
ask questions to the auditor at the company's AGM8 .
The following members also have the right to give a company notice of a resolution that they propose to move at a general meeting:
members with at least 5% of the votes that may be cast on the resolution; and
at least 100 members who are entitled to vote at a general meeting9.
It is both the right to ask questions and to propose resolutions which are susceptible to abuse by activists.
2 Corporations Act 2001 (Cth), s 246G
3 Corporations Act 2001 (Cth), s 251B
4 Corporations Act 2001 (Cth), s 317
5 ASX Listing Rules, Chapters 3 and 4
6 Corporations Act 2001 (Cth), s 250PA
7 Corporations Act 2001 (Cth), ss 250S and 250SA
8 Corporations Act 2001 (Cth), s 250T
9 Corporations Act 2001 (Cth), s 249N
Whilst the proposed reform of the 100 member rule is welcome, I submit that it does not go far enough. I submit that in addition, and consistent with the 100 member rule reform, the following reforms should also be considered:
shareholder members' right to ask questions at the company's AGM (or other shareholder meeting):
limit this right to shareholders who hold at least a 5% shareholding;
shareholders who own less than the 5% threshold shareholding can submit a written question to the company at any time between the publication of the Annual Report and the AGM (which the company must publish). The company to have an obligation to respond within a certain period of time. Perhaps within 30 days after receipt of the question.
shareholders' ability to propose resolutions at a company meeting:
limit their right ot shareholders who hold at least 5% shareholding in the company.
If it is no longer appropriate for the 100 member threshold to apply to the ability to call a shareholder meeting, then it would seem to follow that this restriction should be mirrored for the right to propose resolutions at a meeting. This right is often used in conjunction with the right to call a company meeting as the meeting is called in order to put forward the resolution. One of the drivers for the proposed removal of the 100 member rule was that a company can be held to enormous expense to hold an extraordinary general meeting, particularly when the majority of the shareholders are unlikely to support the resolution put forward. An example of this occurred in 2012 when the shareholders of Woolworths, backed by activist GetUp! proposed to limit maximum bets on poker machines to $1 per spin. The resolutions received minimal support of 2.5%.
As for asking questions, so long as a company has an obligation to respond, this appears a sensible, cost effective way for shareholders to ask questions that they could have asked at the meeting and to receive a considered response. There should be a maximum number of questions a shareholder can ask in any year. Two would be sufficient.
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