CORPORATIONS AMENDMENT BILL 2002
MARCH 2003Australian Institute of Company Directors
Australian Institute of Company Directors (AICD) is the peak organisation representing the interests of company directors in Australia. Current membership is over 16,600, drawn from large and small organisations, across all industries, and from private, public and the not-for-profit sectors. Membership is on an individual, as opposed to a corporate basis.
AICD is a federation of seven State divisions, each of which is represented on a National Council. Overall governance of the AICD is in the hands of its board of Directors which is comprised of the seven division Presidents, plus a Chair, Vice Chairs and a Treasurer. AICD has several national policy committees, focusing on issues such as law, accounting and finance, sustainability, taxation and economics, and national education, along with task forces to handle matters such as corporate governance.
The key functions of AICD are:
- to promote excellence in director's performance through education and professional development;
- to initiate research and formulate policies that facilitate improved director performance;
- to represent the views and interests of directors to Government, regulatory bodies and the community;
- to provide timely, relevant and targeted information and support services to members and, where appropriate, Government and the community;
- to maintain a member's code of professional and ethical conduct;
- to uphold the free enterprise system;
- to develop strategic alliances with relevant organisations domestically and internationally to further the objectives of the AICD.
AICD welcomes the opportunity to comment on the Corporations Amendment Bill 2002 (the Bill). We note that the changes proposed by the Bill implement, in part, the Government Response (tabled on 18 December 2000) to the recommendation of the October 1999 Report on Matters Arising from the Company Law Review Act 1998 of the Parliamentary Joint Statutory Committee on Corporations and Securities (PJSC), (now called the Joint Parliamentary Committee on Corporations and Financial Services) and various reports of the Companies and Securities Advisory Committee (now called the Corporations and Markets Advisory Committee).
In making our submission we have called upon the material in our submission dated 18 August 1998 to Senator Ian Campbell, then Parliamentary Secretary to the Treasurer, which addressed the matters referred to by the PJSC (AICD 1998 Submission). We comment below on the amendments to the Corporations Act 2001 (CA) proposed by the Bill.Commentary
S249 - Repeal of the power of a single director to call a meeting of the company
We note that the PJSC Report included a majority recommendation for the repeal of s249 CA, and the Bill seeks to give effect to that recommendation. The AICD supports the proposed repeal of s249 since the board of directors as a whole, rather than a single director, should have the power to call a general meeting of the company. As we argued in our 1998 submission, a meeting called by a single dissident director could be to the disadvantage of shareholders, particularly if it exposes some personal disagreement and this negatively impacts on the company's reputation and/or share price. The potentially high cost of holding a shareholder meeting for such a purpose is also an argument in favour of repealing s249.S249D - Remove the "100 member" rule
S249D(1) presently allows members with 5% of the votes that can be cast at a general meeting or 100 members who are entitled to vote at a general meeting to requisition a general meeting at the expense of the company. S249DA(1A) provides that the 100 member requirements may be altered by regulation.
The Bill proposes a new s249D, which omits the 100 member requirement and, consequentially, the regulation-making power under s249D(1A), with the consequence that the directors of a company will be required to convene a general meeting only at the request of members with at least 5% of the votes that may be cast at the meeting. The proposed change follows the recommendation of the PJSC.
The AICD supports the proposed new s249D(1) and the consequential repeal of s249D(1A) for the reasons put forward by the PJSC. The AICD notes that the Bill does not propose any change to s249H(1), under which either members with at least 5% of votes at a general meeting, or 100 members, of a company may require the company to include a resolution that they propose to move at a general meeting to be included in the agenda of that meeting. This right enables 100 members, however small their shareholdings to have a matter brought before a general meeting, but without imposing on the company and the general body of its shareholders the expense of convening and holding a separate meeting.Repeal of s249HA - Notice of meetings of listed companies
The Bill proposes the repeal of s249HA, under which at least 28 days notice must be given of a meeting of a listed company's members. If enacted, the result will be that at least 21 days notice of such a meeting must be given in accordance with s249H(1) subject, however, to short notice by member content under s249H(2).
Contrary to our AICD 1998 Submission, we do not now support the proposal to repeal s249HA. The requirement for 28 days notice has been in force for five years. During this time, listed companies have worked to accommodate the 28 day notice requirement. Clearly technological advances and suggestions that institutional investor's internal procedures be streamlined have not diminished the concern that investors have insufficient time to cast informed votes. The additional 7 days provided by the 28 days notice requirement involves little additional inconvenience for the management of listed companies, while providing investors (and particularly international investors) with a more practical timeframe to arrange for the casting of their votes. A longer period of notice should facilitate the casting of more fully informed votes by investors. In support of this approach, we note that the United Kingdom Combined Code provides that at least 20 working days notice of an annual general meeting is required to be given by listed companies. For public companies in the United States, five to six weeks is the average period of notice required to be given to investors by the Securities and Exchange Commission.Repeal of s250J(1A) - Disclosure of proxy voting by the chairman
S250J(1A) requires the chairman of a general meeting to inform the meeting before a vote is taken, whether any proxy votes have been received and how the proxy votes are to be cast.
AICD does not understand the full reasoning for the proposed repeal of this requirement. However, we support the disclosure by the Chairman of proxy voting where the shareholder consents to such disclosure.Amendment of s279(5) to reflect updated intellectual property legislation
These amendments (Bill - Schedule 1 item 6-7) reflect the enactment of the Patents Act 1990, the Trade Marks Act 1995 and the Designs Act 2002. They do not alter the substance of s279(5). The AICD supports the proposed amendments to s279(5).Repeal of s299(1)(f) - Requirement to include in annual directors' report details of an entity's performance in relation to applicable environmental regulation
The repeal of s299(1)(f) is an amendment that accords with the PJSC's recommendation. The AICD considers that if such reporting requirements are considered warranted, they are more appropriately based in Commonwealth environmental legislation, not in the CA.S300A - Requirement for disclosure of the value of options
The AICD supports enhanced disclosure. However, given other impending initiatives relating to both disclosure and remuneration which include:
- CLERP 9;
- ASX Corporate Governance Council Principles;
- Corporations Amendment (Repayment of Directors' Bonuses) Bill 2002;
- International Accounting Standards Board on Exposure Draft 2 Share-Based Payment (ED 2);
we consider it more appropriate that the issue is held over so that a consistent legislative outcome is possible. For your information, we attach a copy of our recent submission in relation to ED2.Repeal of s323DA - requirement to disclose information disclosed to a foreign securities market
This proposed amendment follows the recommendation of the PJSC and we support the repeal of s323DA. The PJSC noted that the only information required to be disclosed to an overseas market is information that it not required to be disclosed by a listed company to ASX: ie information which is non material. It is not efficient or useful for listed companies to be reporting non-material information. Instead, companies should be focussed on reporting material information as required by the ASX Listing Rules. It is also preferable for the ASX to regulate disclosure requirements, rather than the CA.Ss300(10) - Disclosure of qualifications and experience of company secretaries
The Bill proposes to amend ss300(10) to require public companies to disclose in their annual reports the qualifications and experience of company secretaries.The AICD appreciates that the proposed new ss300(10)(d) seeks to ensure that company secretaries are "suitably qualified", just as existing ss300(10)(a) seeks to ensure that company directors are "suitably qualified". We note that such a requirement deflects attention away from the essential qualifications of a director or a secretary: integrity, independent judgement, wisdom and courage. Experience has demonstrated that a board of "suitably qualified" individuals is quite capable of leading a company into financial ruin.
We are concerned about the intrusion of such reporting requirements into individual's personal affairs. However, we recognise that such disclosure is inevitable given the increased scrutiny on senior company officers. If the qualifications and experience of company secretaries are confidential (eg a company secretary holds a position within Government) those details should not be required to be disclosed.