Warnings for voting undirected proxies
Recent amendments to the Corporations Act 2001 have omitted to address key issues relating to the voting of undirected proxies by company chairs.
The changes introduced to the Corporations Act 2001 impacting voting on remuneration reports (see our news alert on 6 October 2011) do not specifically deal with the issue of whether a chairman is able to vote undirected proxies.
This issue is relevant to the ‘board spill’ provisions of the Corporations Act 2001 as a result of the ‘two- strikes rule’. The ‘two-strikes rule’ applies where at least 25% of votes cast on a remuneration report resolution were against the adoption of the report at two (2) consecutive annual general meetings (AGM’s). The recent amendments to the voting requirements for remuneration reports under the Corporations Act 2001 provide for an automatic vote on a board spill if the ‘two-strikes rule’ is invoked.
In order to resolve the uncertainty relating to voting undirected proxies, the Federal Government proposed to amend the new legislation to make clear that a company chairman is permitted to vote undirected proxies on remuneration report resolutions. It is unilkely that these amendments will be considered before the end of the current AGM season.
In the meantime, ASIC has indicated that companies will have four (4) options when considering how to address the problem at their upcoming AGM;
(1) apply to ASIC for relief (which will be based on an individual case-by-case basis);
(2) make no changes to the usual proxy form used by the company and take steps to ensure that the chairman does not vote any undirected proxies on the remuneration report resolutions;
(3) communicate with shareholders to suggest that they should consider nominating a proxy other than a member of the company’s key management personnel for the purposes of the remuneration report resolution; or
(4) change the company’s proxy form so as to ensure that there are more directed proxies which can be included in the vote on the remuneration report.
As the AGM season will shortly draw to a close, the options available to companies seeking to comply with the new laws will be limited to either making the necessary changes to proxy forms or communicating with shareholders to reduce the risks involved in receiving and acting on undirected proxies.
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