Canning 100-member rule a step towards efficiency
"It is unreasonable to put corporations and their shareholders to such a considerable expense in the name of protest alone." John Colvin
The abolition of the rule that allows as few as 100 shareholders to convene a company meeting is an excellent example of deregulation that would allow business to operate more efficiently, without compromising the rights of shareholders.
The Australian Institute of Company Directors has long supported the removal of the so-called 100-member rule under section 249 D (1) (b) of the Corporations Act. Its removal would only affect the ability of a small group of investors to call an extraordinary general meeting – it would not impact any of their other rights.
We recognise vocal shareholders can play an important role in holding companies to account for poor decision-making that potentially threatens to decrease returns to investors. Our support for the repeal of the 100-member rule is not an attempt to stifle shareholder democracy. Rather, it is a recognition this particular provision has not worked in the manner in which it was intended.
Its repeal would in no way muzzle shareholders having a say on company matters as 100 shareholders would still be able to place a resolution on the agenda for the company’s annual general meeting. Shareholders could also still request the company distribute a statement outlining their concerns to all other investors. These provisions protect the rights of small groups of shareholders to express their concerns about any issue that might aggrieve them without the need to call an additional general meeting.
Further, company directors and others have continued to support the retention of the rule that allows members with at least 5 per cent of the votes that may be cast at a general meeting to call such a meeting.
Excessive meeting costs
The problem with the current 100-member rule lies with the vexatious use of the right to call a general meeting at a substantial cost to a company and, as a result, its shareholder.
The cost of such meetings for large listed companies can range from $500,000 to over $1 million. These are excessive figures, particularly when a general meeting is unlikely to achieve any tangible outcome.
These figures also do not include the unquantifiable cost to companies created by the rule. These include the distraction to board and management, as well as the time taken away from engaging with shareholders who have an economic stake in the company and legitimate corporate governance concerns.
It is unreasonable to put corporations and their shareholders to such a considerable expense in the name of protest alone. There are many cases where there is no expectation the majority of shareholders will support the resolutions put forward at a requisitioned extraordinary meeting, making the exercise of activism for activism’s sake.
The need to encourage shareholder participation – an important element of financial markets – must be balanced against the need to manage the costs to the company and the vast majority of shareholders not calling for a meeting.
Requiring 5 per cent of voting shares to call a general meeting achieves a better balance between the rights of shareholders to have matters addressed and allowing directors to run a company effectively.
The Federal Government is right to consider the abolition of the 100-member rule as part of its welcome deregulation agenda. Excessive regulation is strangling business by diverting its focus from other initiatives that will enhance productivity growth and ultimately create jobs.
See article on The Australian Financial Review website, please note a subscription may be required to view this page on their site.