Shareholder resolutions at AGMs
The Australasian Centre for Corporate Responsibility (ACCR), together with more than 100 other shareholders, has lodged a resolution to be debated at the AGM in December of one of the big four banks — ANZ — asking it to make it easier for shareholders to move resolutions; provide more information about how much it is exposed to carbon-intensive industries; and set public targets for reducing its exposure to carbon intensive industries.
Resolutions were lodged by ACCR with Commonwealth Bank (CBA) and ANZ in 2014, seeking them to disclose carbon emissions from their lending. ACCR was advised that such resolutions purport to direct the board in the exercise of powers that are vested exclusively in the board and could not be validly moved as ordinary resolutions. They could only be put forward as a special resolution seeking a binding change to the companies’ individual constitutions and therefore required approval from 75 per cent of the votes that were cast. The resolutions did not pass — only 3.2 per cent of the vote cast at the CBA AGM and only 2.95 per cent of the vote cast at the ANZ AGM were in favour.
The ACCR took CBA to court, arguing that a non-binding resolution from shareholders which expresses an opinion does not usurp the powers of the directors and does not constitute the business of the company. ACCR also claimed that the directors were not acting within the scope of their power by making recommendations on the s 249N resolution proposed by shareholders.
The court decision stated that ‘…the CBA constitution vests all powers concerning the business of CBA in the board (or in management under the board’s direction). The only powers that shareholders have are those which the Act “requires” be exercised by the company in general meeting and none of those powers include a power to pass non-binding advisory resolutions. The terms of the constitution, which make clear that management of the company is vested exclusively in the directors, preclude the implication of any power in the general meeting to pass resolutions proffering opinions on the way in which the board exercises its powers’.
The decision also confirmed the right of directors to make recommendations on resolutions put before the meeting, derived from both the constitution and the duty to fully and fairly inform shareholders of the matters to be considered at a meeting to enable them to make a properly informed decision.
The ACCR is now appealing this decision. And in the 2015 AGM season, it is targeting not only a bank but also energy companies. The ACCR, along with Getup, the Asset Owners Disclosure Project and a number of ethical financial advisers, lodged a s 249N resolution with Origin and AGL seeking to require further information about ongoing power generation and supply chain emissions management and public policy positions relating to climate change in annual reporting. The resolutions failed to pass.
The ACCR frequently refers to the US as an example to emulate in relation to shareholders’ rights to put resolutions on the agenda of the general meeting, commenting that shareholder democracy is at much higher levels in that jurisdiction. However, analysis of such resolutions by US law firm Sullivan & Cromwell in its 2015 Proxy Season Review, which looks at shareholder proposals made at AGMs of S&P 500 companies held on or before 30 June 2015, showed that proposals on social policy issues fail to receive majority shareholder support, unless proxy advisory firm ISS supports them. Social and political shareholder proposals had an average support level of 28 per cent support if ISS recommended in favour, and only five per cent if ISS recommended against. The report noted that the continued frequency of proposals on social policy issues, despite their overwhelming failure to receive majority shareholder support, suggests that activist shareholders submit these proposals as a means of raising social issues in a high-profile manner and attracting media attention.
The ACCR also makes no reference to the stringent and detailed ‘no action’ regime operating in the US, that allows companies to reject proposals from shareholders for resolutions to go on the agenda at the AGM. The company can disallow any proposed resolution to appoint an external board member or remove an existing board member. The company can also disallow proposals relating to the company’s ordinary business operations and also disallow any proposal relating to a part of the business that accounts for less than five per cent of assets and revenue. Even if a shareholder is able to surmount these obstacles, there are also detailed procedural provisions relating to the ‘no action’ regime — both for the shareholder (including having to lodge the proposal 120 days prior to the meeting materials being sent out) and the company in question.
This is very different from Australian, where the shareholder right to put a resolution to the general meeting (a s 249N resolution) is enshrined in law and is seen as an essential element in corporate governance.
The fact that shareholders have fewer rights in the US than in Australia (for example, appointing and removing directors), and the lack of understanding that the reason that shareholder activism differs in practice in the US is due to a lack of shareholder engagement — since the introduction of the two-strikes rule shareholder engagement has become mainstream in Australia while in the US it is only now beginning to be reluctantly accepted by boards — suggests that the oft-stated view that the US has far more ‘shareholder democracy’ than Australia may well be a misreading of the situation.