A landmark ruling in the Federal Court tomorrow could have big implications for the future of shareholders' rights in Australia.
At 9.30am tomorrow in the Federal Court in Melbourne, Justice Jennifer Davies will hand down her judgment in a landmark case against the Commonwealth Bank.
The Australasian Centre for Corporate Responsibility (ACCR), represented by Environmental Justice Australia, took the Commonwealth Bank to court in a bid to establish that shareholders have the right to request the bank to disclose its funding of carbon emissions via ordinary resolutions at the AGM.
The case (see backgrounder
) will set a precedent that will apply to future AGMs of Australian listed companies. If ACCR loses, its future could be imperilled if CBA goes after them for costs, or launches an expensive appeal.
Crikey has previously covered
the ACCR campaign for better shareholder democracy after ANZ also played hardball against its proposed non-binding shareholder resolution on carbon emissions at last year’s AGM.
There have been thousands of non-binding shareholder resolutions in the US after a group of concerned American doctors won a landmark court case against Dow Chemical in 1970.
Over the past three years there have also been hundreds of climate-related US resolutions, but when ACCR tried to put non-binding resolutions to both ANZ and CBA last year, it was forced to instead try to formally change each bank’s constitution and received low single-digit support from understandably cautious institutional investors.
The US allows a single investor with US$2000 worth of shares to put up a resolution, whereas Australian law requires 5% of the issued stock or 100 shareholders, and even then the board can reject resolutions if they relate to operational matters for the company. This is why the tiny number of Australian shareholders' resolutions, which crack the systematic barriers to entry, usually end up as constitutional amendments that get flogged.
One of the few examples of success came when the late fund manager Simon Marais proposed a constitutional change at Roc Oil last year so that it could not issue more than 30% of its stock in a merger transaction without shareholder approval.
Marais felt Roc was shafting its own shareholders in an $800 million scrip takeover
proposal with Horizon Energy and his resolution was supported by 46% of voted shares
, falling short of the 75% super-majority required.
Shareholders in bidder companies on major transactions get a vote in many jurisdictions. When Rio Tinto wasted US$44 billion in cash buying Alcan just before the GFC struck, its shareholders approved the deal. Similarly, when Woolworths of South Africa bought David Jones last year, it couldn’t go over the top because shareholders might have voted the deal down.
The issue came up at the Programmed Maintenance Services AGM in Melbourne on Wednesday when John Curry from the Australian Shareholders’ Association complained that shareholders in its proposed merger partner, Skilled Engineering, were getting a vote when the nominated bidder company was not.
Programmed shareholders will only end up with 47% of the combined company and its share price has under-performed since the deal was announced, suggesting it has offered Skilled a sweet deal, which will be readily embraced by its shareholders.
The same thing happened with this year’s merger between Federal Centres (the old Centro) and Novion Property Group. Federation Centres was the nominated predator so its shareholders didn’t get a vote. Surprise, surprise, Federation Centres under-performed on the market after the deal was announced, suggesting its shareholders, many of whom are smaller retail investors, got the worst of the deal.
This whole situation could be fixed by a quick amendment to the ASX listing rules and this issue will come into sharp focus leading up to this year’s ASX AGM in early October.
A shareholder resolution calling for ASX to fix its listing rules to correct this anomaly would be the fastest way home and if Justice Davies takes a pro-shareholder rights view in tomorrow’s judgment, that is exactly the sort of thing that might flow from her precedent-setting decision.
The other emerging issue on shareholder rights is the question of who has the power to appoint or elect directors.
Macquarie Group’s recent barriers to entry
on the question of its “fit and proper person” test was the first time a listed company board has moved to potentially deny shareholders the right to even vote on a shareholder nominated director.
The Macquarie board kept on citing onerous Australian Prudential Regulation Authority requirements, which raises the question: “Is the government planning to replace shareholders on the question of appointing directors to licensed banks?”
After losing more than $50 billion bailing out its banks during the GFC, that’s a path down which the UK government has started to go.
State governments have long controlled who sits on gaming company boards through onerous probity tests, but even Tabcorp and Tattersall’s did not prevent external candidates from running for their boards in 2006, they just said that, if elected, the candidate would have to subsequently go through the various probity tests.
Macquarie took this further by threatening to not even put the nominee up for election, in a similar way that CBA and ANZ last year refused to put the ACCR’s preferred shareholder resolutions to a vote.
Australia has long had an apathetic culture of shareholder pressure and this has allowed retail shareholders to be diluted out of billions of dollars through unfairly structured capital raisings, which would be illegal in many other jurisdictions.
These rules need to be changed, but that won’t happen until some politicians get elected who fundamentally believe in the philosophy of maximising shareholder rights, rather than letting entrenched boards get away with self-selecting directors, doing value-destroying takeover deals without approval from shareholders and raising capital in a way that does not respect the basic theory of property rights.
Fingers crossed Davies is bold and brave in tomorrow’s decision.