ASX listed companies Annual General Meetings - first strikes continued in 2022

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The Australian Corporations Act 2001 was amended in 2011 to strengthen the accountability and transparency of Australia’s executive remuneration framework and enable shareholders to have more power over the pay of company directors and executives by establishing the ‘two strikes’ rule. The rule means that boards face being spilled if they suffer shareholder votes of more than 25 % against their executive pay proposals at two consecutive company annual general meetings.

The ‘first strike’ occurs where a company’s remuneration report receives a ‘no’ vote of 25% at its AGM (the first AGM). Where this occurs, the company’s remuneration report put to the next year’s AGM must include an explanation of the board’s proposed action in response to the ‘no’ vote or an explanation of why no action has been taken.

The ‘second strike’ occurs where the company’s remuneration report for the next year’s AGM then receives a ‘no’ vote of 25 per cent or more. 

In that case, shareholders will vote at that AGM to determine whether the directors will need to stand for re-election. If this spill resolution passes with a majority of eligible votes cast, then a ‘spill’ meeting will take place within 90 days. A company will still need to provide the minimum notice period for holding a meeting, as required by the Corporations Act. A company will also need to comply with any minimum notice period set out in its constitution for the nomination of candidates for the board. This will ensure that shareholder nominated candidates can seek endorsement at the ‘spill’ meeting.

In 2022, a number of prominent Australian companies distinguished themselves with first 'strike' votes against their remuneration reports as listed below. The reasons for the negative votes were various but essentially involved remuneration being sought which was out-of proportion to the performance of the company. For example, the Board of AGL had presided over a disasterous proposed company restructure that demolished shareholder value and which ultimately had to be abandoned.

Company name	Strike vote %
Santos	25.32%
Cleanaway	25.49%
Goodman Group	28.91%
The Star Entertainment Group	30.11%
Australian Stock Exchange (ASX)	30.52%
Link Administration Services	30.66%
AGL Energy	30.69%
Newcrest Mining	36.40%
GUD Holdings Ltd	41.10%
Blackmores	43.35%

In 2023, hopefully companies will ensure their remuneration does not exceed their performance.

Shareholder activism - who is running the agenda ?

Traditionally when reading and hearing about shareholder activism, images of small shareholder groups, retirees and mum and dad investors petitioning company executives at Annual General Meetings has been the most likely image. The 'activism' landscape has now substantially changed however and shareholder activism now encompasses a much wider definition of participants.

Overseas giant mutual and exchange traded funds have been backing activist hedge funds exerting pressure on publicly listed companies by aggressively calling for change - the ultimate goal to force greater effort to unlock shareholder value and to shake up complacent boards. Current estimates of the amount of funds invested in activist funds in the United States are over $300 billion and the old model of passive asset managers has started to disappear. This is a trend which has not really materialised in Australia with the opposite being more likely than not - characterised by the top ten shareholder groups (usually financial institutions, trustee corporations or investment funds) in ASX listed companies being extremely reluctant to take a position unless absolutely forced.  The question which now is being asked in financial circles is whether this is an ongoing structural trend or merely a cyclical response to a low-growth, low return financial environment. If a structural trend is underway this reveals a major shift in influence as shareholders are clearly demanding a greater active say in corporate strategy than previous decades. Confidence in many boards of listed companies has taken a major fall in recent years due to perceptions that change is not being implemented fast enough. Will Australia join this trend ? Given current shareholder activity, there is a high chance a similar picture, albeit on a smaller scale, will evolve here.