- Consider ASIC’s recommendations from last year’s season
- Common AGM resolutions
- Reminder that ASIC has increased their fees
As listed companies prepare to hold their 2018 annual general meetings (AGM), boards should turn their minds to emerging shareholder trends and current corporate governance issues, as well as the practical aspects of formulating the notice of AGM.
Key strategic themes
ASIC’s report on the 2017 AGM season (ASIC REP 564) set out ASIC’s key observations and provided relatively good governance recommendations. Those observations provide a useful reference point for companies preparing for their 2018 AGM and include:
a. Shareholder engagement
ASIC observed a high level of shareholder engagement at 2017 AGMs, with some shareholders actively voicing discontent on various matters, including company underperformance. Forms of shareholder engagement ranged from private discussions between shareholders and companies, to media-run campaigns and shareholder-requisitioned meetings.
Shareholders and shareholder groups are increasingly active in their stewardship of company assets. Boards should remain mindful of the need to engage proactively with the company’s shareholder base, particularly in the lead-up to the AGM.
b. A focus on election of directors
ASIC statistics have suggested that the overall sentiment in relation to directors during the 2017 AGM season was more negative, with resolutions for the election of directors attracting a noticeable increase in terms of both the number of resolutions receiving material ‘against’ votes and the average vote ‘against’.
This in part reflects the activities of proxy advisers who continue to actively scrutinise companies’ governance practices, using ‘against’ recommendations on director elections as a tool to voice discontent and to seek to effect change.
ASIC found that gender diversity and specific environmental, social and governance (ESG) issues such as climate change were a focus for proxy advisers, with diversity issues resulting in a number of ‘against’ recommendations and ESG issues generating shareholder-requisitioned resolutions.
Boards should understand the engagement practices of proxy advisers and engage early and proactively with proxy advisers, as an extension of companies’ ongoing active engagement with their shareholders. That engagement may be assisted by releasing notices of meeting to the market early and ensuring disclosure to the market is clear and not unduly complex.
c. Remuneration structures
Incentive structures and remuneration programs have historically played an important role as a driver of conduct, with ASIC urging companies to adopt incentive structures designed to achieve long-term company value.
Disclosure of these measures should be structured with the underlying aim of assisting shareholders to understand the bases on which performance-based payments are to be made (or have been made), including whether these payments are (or were) actually at risk. Remuneration structures can involve the use of non-financial targets. Companies should ensure remuneration structures are sufficiently transparent to allow objective measurement of performance and avoid unnecessary complexity in the design of their incentive structures and in the disclosure made in remuneration reports.
ASIC observed fewer “strikes” on remuneration reports (i.e. instances where more than 25% of votes cast by eligible shareholders were against the remuneration report), but increased close calls. This observation suggests that it remains an area needing close attention from companies.
d. Effectiveness of AGMs
Some companies have sought to restructure their AGMs and incorporate the use of technology to achieve more meaningful engagement with shareholders. However, a widespread adoption of direct voting or hybrid AGMs has not yet been widely observed. A hybrid AGM allows shareholders to attend, vote or ask questions physically or online. Instances of companies adopting constitutional changes to facilitate hybrid AGMs in the future indicates a potential trend down this path.
ASIC has noted concerns regarding the use of a ‘show of hands’, rather than conducting a poll, and continues to recommend that companies adopt a poll on all resolutions as a matter of course.
Key practical considerations
a. AGM resolutions
In preparing this year’s notice of AGM, there are a number of common resolutions which companies may wish to consider. These include:
- Re-election of directors - generally a third of the directors need to stand for re-election, with directors not holding office (without re-election) past the third AGM after their appointment.
- “Two strikes” resolution where the company received a “first strike” on its remuneration report at its last AGM.
- Approval or renewal of employee share and option plan/performance rights plan to preserve listing rule 7.1 / 7.1A placement capacity.
- Listing Rule 7.1A approval for an additional 10 percent placement capacity (for companies which have a market capitalisation of $300 million or less and are not included in the S&P/ASX300 Index).
- Ratification of allotments of securities not previously approved by shareholders, to refresh listing rule 7.1 / 7.1A placement capacity.
- Approval proportional takeovers provisions, which need to be renewed every three years and must be approved by a 75 percent majority.
Further detail in relation to these resolutions is set out in our previous article.
b. Voting exclusion statements
ASX has updated listing rule 14.11 regarding the required wording of voting exclusion statements on resolutions. Voting exclusion statements must now refer to excluding votes cast in favour of (rather than simply “on”) a resolution by or on behalf of the specified persons.
c. ASIC fees
As discussed in our article earlier this year, ASIC has implemented changes to its fee structure in 2018. Of particular note for companies preparing AGM notices is increased fees for:
- lodging meeting materials containing resolution(s) approving related party benefits - $802 (increased from $40); and
- applying for approval to shorten ASIC’s 14 day review period of meeting materials containing resolution(s) approving related party benefits, pursuant to s218(2) of the Corporations Act - $3,487 (increased from $40);
Where your AGM will seek approval for related party benefits, we strongly recommend preparing meeting materials well in advance to avoid the need to apply for an abridgement of ASIC’s review period, if possible.
- ASIC lodgement process
ASIC now facilitates electronic lodgement of certain documents including notices of meeting and applications for an abridgement of ASIC’s review period. Email lodgement must comply with ASIC’s strict requirements.