Improving practices for company AGMs
The Annual General Meeting (AGM) season for companies with a 30 June year-end is due to begin shortly.
AGMs provide directors with an opportunity to meet their shareholders and talk about their companies’ performance and strategy.
They are also a chance to update shareholders on important developments since the previous meeting. Companies are encouraged to build a dialogue with all their shareholders and to use the AGM in the same constructive manner as they use results announcements.
The annual report should be used to report to shareholders in a comprehensive and comprehensible manner the performance of the company and its forward strategy.
Each year, the Australian Securities and Investments Commission (ASIC) reviews a number of annual reports and AGM notices. Some notices of meetings must be lodged with ASIC before being sent to shareholders.
Many of those notices are examined to ensure they satisfy the law. ASIC also selectively reviews reports and notices of meeting to ensure they meet the standard content requirements.
In any notice of meeting and the accompanying documents explaining the business of the meeting, all material facts should be fully disclosed. The documents should sufficiently explain the reasons for proposing the resolution and the practical consequences of accepting or refusing a proposed resolution. I think a “pro and con” tabular analysis, focusing on the material positives and negatives of a proposal, is the clearest way to explain the effects.
Notices of meetings are required to be clear, concise and effective. This is a good practice to adopt for all documents sent with the notice of meeting. Companies should focus on the material information to the decision and adopt a layout that promotes readership.
They are reminded that amendments to the Corporations Act 2001, which took effect late last year, may be relevant to the business of this year’s AGM. Those amendments significantly lowered the threshold for requiring shareholder approval for retirement payments to directors and executives.
Approval of any affected retirement payments will need to be clearly communicated to shareholders and all the information required by the Corporations Act provided. Approval for the payment must be sought in a separate resolution. It is not sufficient that the remuneration report contains the information and that shareholders resolve to approve the report.
Companies may also wish to consider voluntarily adopting some of the recommendations made by the Productivity Commission (PC) in its report on executive remuneration.
The PC concluded that it was incongruous for directors and executives to vote on the non-binding resolution to approve the remuneration report, given its purpose to provide non-involved shareholders with a say on remuneration.
Accordingly, in a recommendation that has been accepted by the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, the PC proposed that the Corporations Act be amended to prohibit key management personnel from voting their shares on remuneration reports. This is a matter that could be adopted early by directors voluntarily choosing not to vote.
In its report, the PC also examined the content of remuneration reports. The Corporations and Markets Advisory Committee is examining ways to simplify remuneration reports. However, the PC report does contain some information about the expectations of stakeholders in relation to remuneration reports that could guide companies on their disclosures. Companies should pro-actively review their remuneration reports to ensure they are expressing in a clear, concise and effective manner the information required to be included in the remuneration report by the Corporations Act.
Last year, ASIC reviewed the voting outcomes at a number of AGMs. Voting is a fundamental right of shareholders and central to the governance of companies. It is important that shareholders have confidence that their votes are being accurately counted and that proxy documents are properly handled.
To ensure the integrity of the voting process, companies should check with their share registries that there are adequate processes to support the counting of votes, including the proper receipt and processing of proxy documents and the proper treatment of any votes subject to a voting exclusion. Record keeping is important.
ASIC recently issued an advisory on the electronic lodgement of proxy documents. It confirmed that listed companies could receive and apply proxy documents lodged electronically by shareholders without amending their constitutions to expressly permit that. ASIC hopes this has provided clarity for listed companies.
The AGM season can be a busy time. A lot of resources are devoted to preparing the relevant material and holding the meeting. It is in everyone’s interest for AGMs to have a productive outcome, and that the exercise begins with clear annual reports.
Belinda Gibson
MAICD
Deputy Chairman
Australian Securities and Investments Commission