05 Jun 2012

Fast-track fix for two strikes proxy error

Legislative amendments have been fast-tracked into parliament to fix a drafting error relating to the voting of undirected proxies at AGMs, which have been keenly expected in the context of the new "two-strikes" rule on executive remuneration. Will the fix make any difference to the upcoming November AGM season? Andrew Hay examines the change and what effect it will have.

Transcript

Fast-track fix for two strikes proxy error 
David Bushby, BRR Media
Andrew Hay, Partner, Corporate Advisory / M&A, Clayton Utz

David Bushby
Today BRR Media speaks with Andrew Hay; he’s a Partner in the Corporate Advisory team at Clayton Utz in Brisbane. Welcome back to BRR Media Andrew.

Andrew Hay
Thanks very much David.

David Bushby
Andrew, the rules governing shareholder voting on executives’ pay are being fine-tuned with amendments going into Parliament late last month.

Andrew Hay
That’s correct David. The two strike rule which was introduced last year inadvertently the Government included a provision in those rules which prevented a Chair from voting undirected proxies on the remuneration report and the amending Act that has been introduced to Parliament seeks to redress that issue.

David Bushby
Andrew, given the perceived conflict of interest in key management personnel such as the Chair of AGM voting on these matters, there is a requirement for shareholders to provide their informed consent. How will that work in practical terms?

Andrew Hay
Well I think in relation to the Chair, first of all for a lot of the ASX listed companies the Chair is supposedly an independent person to start with, and that’s actually brought forward or brought out in the ASX Corporate Governance Rules. For those that don’t have an independent Chair usually it is the case that a board will indicate in their Notice of Meeting or Explanatory Memorandum, how the board intends to vote on a particular matter, if they are given undirected proxies. And then separately from that if the Chair thinks that they’re conflicted in some way for that particular resolution they could in fact step aside as the Chair for that particular resolution and put someone else in place. Although I don’t think that that would be a situation that would be widely taken by many companies.

David Bushby
Andrew, this fix has been described as many as correcting a drafting error, in fact you were saying earlier it’s an inadvertent error. Was it really a mistake in the wording or was this amendment really actually trying to respond to stakeholder concerns?

Andrew Hay
No I truly do believe David that it was an inadvertent error on the drafting part of the Government. Usually corporate governance-wise at least the Chair is that person that’s considered to be the right person to vote undirected proxies. This amendment just seeks to clarify that.

David Bushby
And just coming up to the second AGM season under the new two strikes rule, do you have a sense of how this change might affect the number of remuneration of votes falling below that critical 25% number?

Andrew Hay
I think it will make a slight difference, but I don’t think it’s going to make a substantial difference. The reason I say that, and obviously you need to look at the percentages and votes cast from last year's AGM season, but my sense of it is that most companies were conscious about this error and put in place systems or put in place actions that would counter that drafting error, and therefore that’s why I say it’s probably only a slight difference this year because obviously the legislation will make it easier for a Chair to vote undirected proxies.

David Bushby
And time’s certainly flying towards the November season. Are you expecting the Bill in the meantime to be passed as is and what’s the likely timing do you think?

Andrew Hay
Look the Government has put in place measures to try and get this amendment through as quickly as possible. Previously it was tacked on to the end of a Consumer Credit Bill, but now it’s its own separate piece of legislation and I understand that the Government is looking to pass that legislation by the end of June, which will hopefully give everyone enough time for the latest AGM season.

David Bushby
Well certainly I guess a keenly awaited amendment, and we’ll see how it comes through when it does. But thank you again for your time today Andrew.

Andrew Hay
Thanks very much David.

David Bushby
That was Andrew Hay, a Partner in the Corporate Advisory team with Clayton Utz in Brisbane. And listeners if you have any questions for Andrew about this interview please email him on ahay@claytonutz.com.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.