Inside AICD Policy Update

  • Date:01 Dec 2007
  • Type:CompanyDirectorMagazine
An outline of some of the issues addressed by AICD’s policy department, committees and taskforces during the last month.

Policy Update

Parliamentary Joint Committee on Corporations & Financial Services’ inquiry into shareholder engagement and participation

In early November, AICD lodged its submission to the Parliamentary Joint Committee (PJC) on Corporations & Financial Services’ inquiry into shareholder engagement and participation.

The submission was the culmination of an extensive consultative process which, we believe, is reflective of directors’ views across Australia. The process involved top 200 lunchtime meetings in Melbourne and Sydney and substantial input from AICD’s policy committees and state councils.

In general, AICD believes that Australia’s current system of corporate governance works very well, as evidenced by international comparisons, high levels of foreign investment and strong company growth.

The rise of shareholder activism has, however, highlighted fundamental misunderstandings about the corporate governance responsibilities of directors, executives and their shareholders.

By choosing to invest in a listed company, shareholders are entrusting control of their capital to the company’s directors. Directors are elected by shareholders to act in the best interests of the company. Boards should engage with their shareholders through clear and frequent communication, but AICD believes that the vast majority of governance decisions should be left to directors.

That said, AICD and its members do welcome the challenge of continuously improving shareholder engagement and participation. Indeed, directors realise that there is discontent among some shareholders relating to governance issues at some companies.

AICD believes that effective shareholder communications is the key to restoring and maintaining shareholder trust, and once achieved, will allow boards to focus on creating long-term value through enhanced performance.

Only in a very few cases do problems arise and these create pressures for changes in governance. However, AICD argues in its submission that increased regulation is not the answer. When regulation is imposed in response to a few bad examples, it constrains innovation and development for all companies. The burden of regulation falls unequally and is detrimental to smaller companies in particular.

Instead, AICD stresses the need for each company to identify the best approach of communicating with its shareholders, depending on its individual circumstances.

In its submission to the PJC, AICD recommended a number of ways in which the engagement between directors and their shareholders could be improved. These include:

  • Extending the current range of communications and reducing complexity;
  • Reforming and supplementing the Annual General Meeting;
  • Improving voting processes;
  • Creating greater transparency about the identity of major shareholders and the voting recommendations of proxy and governance advisors;
  • Becoming more transparent about board processes and providing greater detail about the skills of directors up for election; and
  • Extending statutory protection to directors when they provide forward-looking financial statements (in the form of a general defence).

Some topics addressed in AICD’s submission include:

  • Australia’s model of corporate governance (international comparison);
  • Corporate governance principles;
  • The respective corporate governance roles of shareholders, boards and executives;
  • Shareholders today – who are they?;
  • Shareholder activism – diverse shareholder interests and implications on governance;
  • Director nomination and election processes;
  • Director independence;
  • Board evaluation;
  • AGMs and shareholder voting processes;
  • Statutory and voluntary reporting;
  • Legislation and regulation governing engagement between directors and shareholders;
  • Role of proxy and governance advisors; and
  • How super fund and fund managers impact on shareholder engagement.

For feedback or to obtain further information, please contact Jennifer Stafford, Senior Policy Advisor, Policy & Advocacy at:

All AICD policies and submissions can be found at: under ‘Policy and Advocacy’.

FAQ of the month


Is it ethically and legally acceptable for a company to provide sub-contractors or business partners with trips to attend ‘networking’ events or holidays organised by the company as a reward for partnering their business with the company?


This is a complex area and we would recommend seeking legal advice tailored to your specific circumstances if you are seriously considering this for your business.

There are numerous issues to consider. Transparency is the key factor – the whole process must be open and transparent for shareholders and regulators to see. This involves planning and thought in advance of implementation, such as determining which partners are eligible, the rules regarding what sort of reward can be given, the timeframe for offering and taking advantage of the reward, and determining what approvals and disclosures are necessary. This information should be formalised in an official policy.

Other questions to ask include: Has the whole board approved this expenditure? Has it been budgeted for? Should company profits be spent in this way? Do shareholders have to grant approval? Do these rewards fall into the category of related party transactions? Section 208 of the Corporations Act states that public companies wanting to give a financial benefit to a related party must obtain members’ approval and give the benefit within 15 months of its approval.

The company should also consider disclosing how the sub-contractors or partners were appointed – was there an open tender system? Are the partners actually friends, family members or companies somehow related to the company’s directors?

Directors also have a duty under section 182 of the Corporations Act not to misuse their position to gain advantage for themselves or someone else. Contravention of this may bring civil penalties such as fines.