tip off

Red tape cut or gift to business? Shareholder activism harder than you think

The government wants to make it harder for shareholders to call an extraordinary general meeting. But the reason cited is a phantom, and the government should look elsewhere to ‘cut red tape’.

Ever since the Abbott government was elected last September, The Australian has been put “on the drip” with a steady stream of “scoops” promoting its agenda.

Fairfax Media, including The Australian Financial Review, has been largely left out in the cold, which might explain why the paper got so excited on Tuesday when it was given a rare “exclusive” over apparent plans to remove the right of 100 shareholders of an ASX-listed company to call an extraordinary general meeting. The AFR gave it front- and back-page treatment on Tuesday, confidently declaring in a splash headlined “Boards shielded from activists” that “the government will legislate on Wednesday”.

This was followed up with another page 1 story today headlined “EGM rule ‘open to abuse’”, which included numerous complaints from chairs about a problem that doesn’t really exist. There was also a lead editorial today, which opened with the following inaccurate claim:

The Abbott government’s plans to close down the ability of as few as 100 political activists to force companies to hold extraordinary general meetings by simply holding a few shares each amounts to more than getting rid of some bothersome red tape. As revealed in The Australian Financial Review …”

For starters, you can no longer do it with “a few shares” but instead must hold a “marketable parcel” worth more than $500. And it also doesn’t look like parliamentary secretary Josh Frydenberg has delivered on his promise to the paper.

The Australian noted in its follow-up story today that Frydenberg’s spokesman said “it had not yet been decided whether that measure would be included in legislation due today”. Well, the explanatory memorandum for the Omnibus Repeal Day Bill 2014 was released this morning and the much-touted proposal didn’t make the cut.

The Australian Shareholders’ Association released a statement yesterday supporting the EGM change but calling for a wider look at the 100-signature rule to make it easier for shareholder resolutions at AGMs.

It’s true that Wesfarmers copped an EGM in 1999 organised by The Wilderness Society opposing its now-discarded old-growth timber operations in Western Australia’s jarrah forests. There were 120 petitioners, many of whom owned just one share, who together put up eight anti-logging resolutions, which were all easily defeated.

After that, it is real struggle to find standalone EGMs, with the exception of another Wilderness Society effort on Gunns in 2003.

It’s true companies such as North (1999) and Woolworths (2012) held EGMs on the same day as their AGMs, but this was a far less costly process than having to do a separate mailout and venue  hire.

The lack of evidence of any problem related to EGMs was demonstrated by the graphic presented on page 6 of the AFR today. Three of the six examples cited as “meetings called under the 100-shareholder rule” were actually resolutions proposed by investors at the AGMs of Santos, CBA and Rio Tinto …

Indeed, over the past 20 years there have only been about 15 examples of 100 signatures being gathered to trigger a vote at an ASX200 shareholder meeting, and the vast majority of these occurred on the day of the AGM.

The real “red tape issue” to challenge is the administrative burden of investors having to get 100 wet signatures to propose a resolution at the AGM.

When the Howard government proposed abolishing the 100-signature rule for EGMs in 2005, it offered retail investors the compromise of lowering the threshold for AGM shareholder resolutions down to just 20. This is still too much red tape for investors and the ASA is arguing for a new 10-signature requirement, which is still much higher than in the United States where individual shareholders can put up resolutions, albeit for a non-binding vote.

The most common use of the 100-signature rule relates to what is called a S249P statement of up to 1000 words which must be included in the notice of meeting. There is no vote involved but the ASA has done this with Pacific Dunlop (2000), Telstra (2001), Coles Myer (2002), David Jones (2002), Foster’s (2004), National Australia Bank (2004) and Paperlinx in 2005.

We’d like to be able to put up resolutions and S249P statements more easily but find the 100-signature rule a crushing red tape burden. This barrier to entry explains why I’ve never put up a resolution despite attending more than 400 meetings over the years.

If you want to raise an issue in the notice of meeting, it’s a whole lot easier to just run for the board, which only requires one signature from a shareholder. Hence, the 40-plus tilts over the years.

*Stephen Mayne is policy and engagement co-ordinator for the Australian Shareholders’ Association

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  • 1
    PDGFD1
    Posted Wednesday, 19 March 2014 at 10:33 pm | Permalink

    Thanks for clearing that up Mr.M… it’s always more than worth my time to ‘clock in’ when you’re ‘on deck’

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