Standards

Governance in Australia

The Simpler Regulatory System (SRS) Bill was passed in the Australian parliament on 21 June and its most immediate effect will be amendments allowing the distribution of annual reports over the internet. Companies are now able to distribute annual reports by making them available on their websites, with hard copies and concise reports only being sent to those shareholders that request them. This change is effective immediately, affecting financial reports relating to the 2006-07 reporting period that ends on 30 June 2007.

The Bill is designed to cut red tape, and was passed into law only shortly after the Business Council of Australia (BCA) accused state and territorial governments of failing in their efforts to get the “continuing red tape blow-out” under control. The report stated that, despite reforms having been made, there is little consistency across states, and this is in turn impeding the creation of a national approach to excessive regulation.

The BCA was, however, supportive of the SRS Bill. Katie Lahey, BCA chief executive, called it: “a good example of a review of existing legislation to determine whether it remains effective and efficient, with amendments to ensure that unnecessary costs are not imposed on business”.

Among the legislation’s other provisions are amendments that: require companies to disclose board policy on directors hedging their incentive remuneration; incorporate within the Corporations Act accounting standard requirements for remuneration disclosure (companies previously had to refer to both the Act and the accounting standards); and require the auditor to express an opinion on remuneration information.

This came as a report by law firm Blake Dawson Waldron (BDW) examined practices and procedures used at the AGMs of Australian companies, including 42 from the S&P/ASX 100. This included an analysis of the way the non-binding remuneration report vote—a relatively new requirement—is being handled at meetings.

The report analyses how many companies expressly indicate to shareholders that they will take account of the non-binding vote on the remuneration report. A significant drop was recorded in companies that chose to make a positive statement on this: although still a majority, it fell from 67% in 2005 to 55% in 2006.

(It should, however, be noted that whether or not a company makes a positive statement of this kind is not a clear indication of whether the non-binding votes are being taken into account: there is no evidence that companies not making such a statement will fail to take account of the vote).

Furthermore, 2006 saw a decline in AGMs featuring a separate presentation on the remuneration report—with 69% of companies making them in 2006, down 10% from 2005. While it was suggested that the figure was higher in 2005 as a result of the requirement being new and there being more uncertainty about how to deal with it, many participants in the BDW survey regretted its decline. They argued that a separate presentation is useful to focus shareholder attention on certain issues, and the way in which the report is presented can affect voting on the resolution.

The remuneration report was adopted at each of the meetings surveyed, and at 64% proxies cast in opposition to the report were less than 5%. Six companies had more than 25% of votes cast against the report. Many of the affected companies attributed, in part, negative votes received to a negative voting recommendation from proxy advisory firms.

August 2007