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Client Update: Chairman voting undirected proxies on remuneration report

28 September 2011

In brief: Amending legislation that has been introduced to resolve an anomaly that generally prevents the Chairman of a listed company's AGM from voting undirected proxies on the adoption of the company's remuneration report may not be implemented before the end of the current reporting season. Law Graduate Bridget Little and Partner Greg Bosmans (view CV) provide an update.

Background

Listed companies have been required for some time to prepare a remuneration report each year, and to put a non-binding resolution to adopt the report at their AGMs. Recently, the Corporations Act was amended to place voting restrictions on key management personnel (KMP) and their closely related parties in relation to remuneration-related matters at general meetings, including the remuneration report resolution.

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Unintended impact

However, while those amendments allow, in certain circumstances, the Chairman of an AGM (who is otherwise subject to the restrictions) to vote undirected proxies on remuneration-related matters generally, that exception does not apply to the remuneration report resolution. This omission is potentially significant, as the recent amendments also introduced a 'two strikes' regime into the Corporations Act, under which significant 'no votes' on the remuneration report resolution at successive AGMs can result in the whole Board being subject to election. The inability of the Chairman of an AGM – who is often the recipient of shareholder proxies, either directly or by default – to vote undirected proxies on the remuneration report resolution could have a material impact on the outcome of voting on the resolution, increasing the chance of the 'two strikes' regime being invoked.

Both the Federal Treasury and ASIC have acknowledged that this omission is an anomaly, and that the exception was instead intended to apply to voting on all remuneration-related matters. The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 was introduced into the House of Representatives on 21 September 2011 to correct the issue, among other things.

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Resolution

If passed, the Chairman of an AGM who is otherwise subject to the restrictions will be able to vote undirected proxies on the remuneration report resolution where the appointing shareholder provides express authorisation for the Chairman to exercise the proxy, provided the shareholder is not themselves a member of the KMP listed in the remuneration report or a closely related party of such a KMP.

The Bill has been referred to both the Parliamentary Joint Committee on Corporations and Financial Services and the Senate Economics Committee for inquiry. Given the acknowledged anomaly in the current law, it is unlikely those inquiries will focus on the proposed correction of this issue. However, in light of the timeframes for the inquiries and given these amendments are part of a much larger Bill, there is a real risk they will not be implemented for AGMs being held during the current reporting season. In the meantime, listed companies will need to continue utilising other strategies to deal with the anomaly.

For further information, please contact:

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