By Michael Hansel, Partner and Katherine Hammond
Recent changes to Australia's corporate governance laws confirm that a Chair is able to vote undirected proxies, providing certainty to listed companies ahead of this year's AGM season.
The amendments to the Corporations Act 2001 (Cth), which came into effect on 28 June with the passing of the Corporations Amendment (Proxy Voting) Act 2012, will be particularly welcome by those companies on 'one strike' and facing a board spill.
Here, partner Michael Hansel and solicitor Katherine Hammond outline the changes and explain what they mean for listed companies who are currently preparing their 2012 AGM notices.
Key points
- The amendments clarify that an AGM Chair who is also a member of the company's key management personnel may vote undirected proxies on the non-binding resolution on executive remuneration (the 'Remuneration Report Resolution') if:
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- a shareholder provides express consent in a proxy appointment for the Chair to exercise the proxy; and
- the vote is not being cast on behalf of a shareholder who is a member of the key management personnel and whose remuneration details are included in the remuneration report, or a closely related party of such a member.
- While the Remuneration Report Resolution is non-binding, voting on the resolution is particularly important due to the two-strikes rule, which requires a listed company to hold a spill vote for all directors if the resolution receives a 25 percent 'no vote' in two consecutive years. The recent amendments to the Corporations Act therefore give listed companies who have received their 'first strike' confidence that the Chair is able to vote undirected proxies in favour of the resolution, potentially reducing the likelihood of a 'second strike'.
- The recent amendments remove any need for ASIC relief to permit the Chair to vote on the Remuneration Report Resolution, which some companies may have sought last year.
Background to the amendments to the Corporations Act
Under the Corporations Legislation (Improving Accountability on Director and Executive Remuneration) Act 2011, which came into effect on 1 July last year, key management personnel and their closely related parties are restricted from voting on resolutions related to remuneration. Section 250BD(1) prevents such a person or their closely related party from voting undirected proxies on resolutions that are connected directly or indirectly with the remuneration of key management personnel, with an exception if that person is the Chair of the meeting and the proxy appointment expressly authorises the proxy to be exercised in those circumstances.
However, this exception conflicted with two other sections of the Act. Sections 250R(4) and (5) prevented votes from being cast on the Remuneration Report Resolution by or on behalf of key management personnel whose remuneration details are included in the remuneration report, or their closely related party, unless the vote is under a directed proxy and is not cast on behalf of such a person or their closely related party. Those provisions were expressed to apply despite anything else in the Corporations Act, and therefore led to the interpretation that they override the section 250BD exception. As a result, even with consent, a Chair who was a member of the company's key management personnel or a closely related party could not vote undirected proxies on the Remuneration Report Resolution.
In response to stakeholder concern about the inconsistency and lack of clarity surrounding these amendments, the Federal Government announced that it intended to amend the Corporations Act as soon as possible to clarify that the exception applies, and that a Chair is permitted to vote undirected proxies on the Remuneration Report Resolution with consent. The Government maintained that the contrary interpretation was never its intention.
ASIC has the power to grant relief to a company to permit the Chair to vote on a specified resolution, although it does not have the power to grant class order relief. Because of this, some companies spent additional time and expense seeking ASIC relief in respect of the Remuneration Report Resolution for last year's AGM.
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