The list of companies and directors that have fallen foul of the controversial new “two-strike” laws governing executive remuneration is getting longer, but neither the stock exchange nor the corporate regulators know what companies are on that list. And confusion reigns about how the laws operate, and the consequences for errant companies.
This year’s annual general meeting season will be the first test of the two-strike rule, under which a company’s board can potentially be spilled. Under changes to the Corporations Act, which came into effect on July 1, 2011, listed companies that received a vote of 25% or more against their 2011 remuneration reports last year are counted as having a “first strike” against them. If any of those companies receive another vote against their remuneration reports this year, it will trigger the “two-strikes” clause. Just what happens then is the source of some confusion.
According to the corporate governance specialists, Ownership Matters, for a board to be spilled there must be a conditional resolution put to and voted for by a majority of shareholders. “To suggest that company directors ‘face the axe’ as a result of the two-strikes laws is ridiculous,” says Dean Paatch, a director of Ownership Matters, commenting on a report in today’s Australian Financial Review. “It is ridiculous because institutional investors can distinguish between a protest vote and a conditional resolution.”
However, the CEO of the Australian Shareholders Association, Vas Kolesnikoff, tells LeadingCompany that there is a lot of confusion about how the laws operate in terms of when and how board spills are triggered.
The AFR reported that 565 directors are “facing the axe”, meaning they are potentially affected by the two-strike rule (see a list of companies affected below), naming 10 companies in the report today.
But Kolesnikoff is far from worried that so many directors are affected; he is more concerned that so few boards have been taken to task over exorbitant bonuses and executive remuneration.
Kolesnikoff’s examples include:
- Bluescope Steel, which lost a billion dollars in revenue, but still paid executives bonuses.
- The rising pay of Fairfax’s board and CEO despite stock prices falling from $5 to 60 cents over several years.
- QR National’s board arguing that shareholders accept that its financial targets be lowered by millions because of the recent cyclone and floods, and then approve bonuses for executives on the revised targets.
Julie Walker, associate professor in accounting at the University of Queensland, studied 240 listed entities and noted an increasing “no” vote against remuneration reports. “We found the average “no” vote on the remuneration report for our sample has increased steadily from 5.4% in 2005 (the first year of the vote) to 11.4% in 2009,” Walker writes on The Conversation.
The number of no votes is still very low. However, neither the Australian Securities Exchange (ASX) nor the corporate regulator Australian Securities and Investments Commission (ASIC) has a list of companies that have a first strike against them. The enforcement of the new laws is up to the voting courage of investors.
Companies that have incurred a “first strike” vote against their remuneration report.
The list below is compiled from a variety of sources (named) and is not complete.
- GUD Holdings
- Challenger Financial
Source: The Age
- Southern Cross Exploration
- Nido Petroleum
- Guinness Peat Group
- Beadell Resources
10. Roc Oil
11. Mirabela Nickel
12. Heemskirk Consolidated
13. Australian Pharmaceutical Industries
14. Torian Resources
Source: The AFR
16. Pac Brands
21. Bluescope Steel
22. Tassal Group
23. News Corp
24. Nexus Energy
26. Sirtex Medical
Source: Australian Shareholders Association