ACCR has been pursuing a legal case to put Australian shareholder rights on a par with those in the US, the UK, Canada and New Zealand. The case came about because in 2014 the Commonwealth Bank refused to put our ordinary resolutions on their AGM agenda. Instead the CBA board said that the only resolution they would put to the meeting was to change the constitution. The case is not specifically about CBA, it is about shareholder rights in Australian listed companies.
The case was first heard on Monday 1 June 2015. ACCR lost the original case and on 10 June 2016, ACCR was informed that we had lost our appeal in the Federal Court. We are of course disappointed and will consider the judgement and our response.
The case came about because in 2014 the Commonwealth Bank refused to put our ordinary resolutions on their AGM agenda. Instead the CBA board said to the proposing shareholders the only valid option open to them was to endeavour to change the Constitution.
ACCR argued that the ultimate rights in a company are held by shareholders. After all we/they own the companies. Because of this, ACCR argued, under Australian law properly construed, boards cannot prevent formal comment by shareholders unless shareholders expressly give away this right which they have not done. This how corporate democracy works in the USA. Hundreds of shareholder resolutions are considered each year.
Barristers for CBA argued, effectively, corporate democracy was representative democracy only, once directors are elected shareholders are mostly silenced. Changing the constitution is explicitly allowed in Australian company law but it is often not the appropriate way for shareholders to tell the company about concerns they hold on relevant long term issues.
In 2014 Commonwealth Bank (via Colonial First State its wealth management arm), voted on well over 46 shareholder resolutions at the AGM’s of companies it owned. Almost all of these resolutions were just the same type that CBA wants to stop ACCR and other shareholders moving at meetings of CBA’s own shareholders.
The case was heard on Monday 1 June at the Federal Court in Melbourne before Justice Davies and the decision was handed down on 31 July 2015.
One of the resolution that CBA rejected states:
That, in the opinion of the shareholders it is in the best interests of the company that the Directors provide to the shareholders by the time of the release of the 2015 Annual Report, a report prepared at reasonable cost and omitting any proprietary information outlining: (a) the quantum of greenhouse gas emissions that the company is responsible for financing calculated, for example, in accordance with the Greenhouse Gas (GHG)Protocol guidance; (b) the current level and nature of risks to the company from ‘unburnable carbon’; and (c) current approaches that have been adopted by the company to mitigate those risks.
Corporations are among the most powerful institutions in the world, and their power is growing. Governments are held to account at the ballot box, but there are very limited ways that shareholders can hold corporations to account. THis case is about the ability of shareholders to put ordinary resolutions to general meetings of Australian companies in consideration of the annual report or expressing an opinion about the best interests of the company. Australian law is unclear about whether shareholders have this right, and, when it has suited them, companies have been acting on the assumption that they do not.
There are two kinds of shareholder resolutions: ordinary and special.
- Special resolutions, for example, resolutions to amend the company’s constitution and require 75% support from shareholders.
- Ordinary resolutions require a simple majority of 50% and can cover a broader range of issues.
Overseas, social and ethical resolutions are typically not resolutions to amend the Constitution s. Ordinary resolutions avoid the need to change governance rules of the company when shareholders simply want a single issue better considered. International practice shows that institutional investors are much more comfortable supporting ordinary resolutions than amending company constitutions.
Ordinary resolutions are a much more practical and accessible way for shareholders to express their concerns about practices of the company.
Have any shareholder resolutions been considered in Australia before?
Shareholder resolutions are relatively rare in Australia. Only about a dozen have been filed in the last decade and the majority of these were special resolutions, seeking to change the constitution of the companies concerned.
What are the rules in other countries?
Corporate democracy is an important part of responsible corporate governance in most developed countries. In the area of shareholder resolutions, Australia is far behind the rest of the world in recognising shareholder rights.
Most other developed countries allow some form of shareholder resolution. The US, UK and Canada, in particular, have strong cultures of shareholder engagement, and shareholder resolutions are a longstanding and effective way for concerned shareholders to achieve change in the way a company does business.
Placing resolutions on the agendas of very large companies' AGMs promotes awareness of issues, and helps to change corporate behaviour. Resolutions on issues from climate change to child sex trafficking have been considered by company general meetings. Even when a majority of shareholders do not vote in favour of the particular resolutions, companies will often change their practices in response to the continued public pressure brought about by shareholder resolutions.
Resolutions very similar to the one proposed by ACCR at CBA were put to Bank of America and PNC Financial Services Group; they received 24% and 23% support respectively. In the case of Bank of America, at today’s value, this represents share holdings in excess of $41 billion supporting the resolution.
In 2006 the UK amended their laws to make it explicit that shareholders can direct the conduct of the board of directors. The case against CBA is about clarifying that shareholders can express an opinion about the conduct of the company rather that about being able to direct the board. What the experience overseas shows is that shareholder democracy can be an important part of good corporate governance and does not impose an undue burden on companies but rather helps to ensure that the are responsive to the interests and values of their shareholders.