Report on the engagement and participation of shareholders in corporate governance of companies

In late June, the Parliamentary Joint Committee on Corporations and Financial Services (PJC) published a report following an enquiry into the engagement and participation of shareholders in the corporate governance of companies.

The PJC report, called ‘Better Shareholders – Better Company’ sets out 21 proposed law reform recommendations as a preferred approach to reform in this area, which are aimed at:

  • improving the flow of information between companies and shareholders; and
  • improving corporate accountability mechanisms.

Some of the more interesting recommendations included:

  • ASX to clarify the scope of continuous disclosure requirements under ASX Listing Rule 3.1 as it applies to engagement on environmental, social and governance issues;
  • ASIC to clarify the position of institutional investors engaging collectively with companies outside company meetings in terms of the Corporations Act;
  • ASIC to develop best practice guidelines for a number of items including:
    • conducting AGM’s;
    • clear and concise company reporting;
    • content of company constitutions;
    • practices governing the nomination and election of directors,
  • section 173 of theCorporations Act should be amended to restrict access to the details of non-substantial shareholders based on a special purpose test; and
  • the government should investigate an alternative regulatory framework for small incorporated companies and not-for-profit organisations.

The recommendations also looked at amendments to the Corporations Act to allow voting on AGM items of business for a period of time after the AGM has closed.

We will be watching with interest to see whether any of the recommendations are implemented in the near future.

Director’s share trading

ASIC and the ASX are currently working together to crackdown on the poor reporting of director’s shareholdings.

Under the ASX Listing Rules, companies have to disclose to the ASX any change in a director’s shareholding within 5 business days of the change.

On top of that, the Corporations Act requires directors to notify the ASIC within 14 days of any such change.

Over the past few months, the ASX and ASIC have released a number of publications on this issue. On 27 June 2008 the ASX released a review of Directors’ Interest Notices and found that of the 4,137 notices lodged between 1 January and 31 March 2008, 538 (13%) breached the ASX Listing Rule requirement to disclose to the market within 5 business days. Of these 538, 289 (7%) also breached the Corporations Act by failing to disclose to the market within 14 calendar days.

The ASX has noted that from July 1 2008, it will actively monitor the lodgement of director’s interest notices. The ASX has stated that it also intends to take action in relation to any director’s interest notice which is lodged late or which is incomplete. If the requirements are not complied with the matter may be referred to ASIC.

Under the Corporations Act, the maximum penalty for a breach of section 205G (failing to notify the ASX of director’s interests) is a fine of 10 penalty units ($1,100), 3 months imprisonment or both.

Companies are therefore reminded to ensure that the relevant systems are in place to report director’s shareholdings to the ASX in accordance with the time frames in the Listing Rules.

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