It has been an historic week for shareholders with the new two strikes rule on remuneration reports bringing home to boards the simple fact that they do not own the company and have to take shareholders seriously and treat them as necessary evils.
A handful of leading companies from Crown, to Watpac, News Corp, GUD, Pacific Brands and Bendigo and Adelaide Bank have paid the price for not listening to concerns from their owners about the way executives are being remunerated or the way the companies run themselves.
The directors’ clubs, led by Don Argus, the former chair of BHP Billiton and CEO of the NAB, have complained about the rule and the ‘influence’ of proxy services which examine remuneration and other reports and recommend voting for or against them.
But shareholders have used the new rules to ‘ping’ boards that refuse to listen.
The rebuffs were mostly rejections of remuneration reports under the two strikes law that has only just come into being, but one was a more widespread vote involving shareholder participation in approving mergers and the size of the board.
But importantly we saw one leading company, Transurban, escape censure after taking the trouble to change its remuneration policies to meet shareholder concerns, and winning a very low ‘no’ vote compared with what happened at the three previous AGMs.
So there is a positive side to the new regulation for companies and shareholders. The very well connected Transurban board saw that and changed things and received a low vote.
And in doing that, the Transurban board sank the criticisms of the directors; club, Mr Argus, James Packer and anyone else.
Yesterday we saw James Packer at the Crown AGM criticising the proposed changes to poker machine laws, call on the federal government to do more to stimulate tourism and then cop a vote of 55% against his company’s 2011 remuneration report.
That was a stinging rebuff and actually greater than the one delivered to Pacific Brands on Monday where the rejection vote was slightly less at 52.9%.
Crown shares shrugged off the negative vote and closed up 17c or 2% at $8.17.
Mr Packer said he would neutralise any shareholder backlash against Crown remuneration report next year after the sweeping ‘no’ vote.
Under new regulations the Crown board faces a spill motion next year if it receives more than 25% vote against the 2012 remuneration report.
Mr Packer, who is executive chairman and owns 45.6% of Crown, said he would not let the board be dismantled.
"If we receive an ‘against’ vote again next year the board will spill. If that happens I will use my votes to ensure all directors are voted back in immediately," he told the annual meeting at Crown Casino in Melbourne, according to AAP reports.
The "against" votes came from institutional investors which received advice against the company’s new long-term incentive strategy. The new strategy was based on increases in earnings per share over the next four years.
Besides Pacific Brands and Crown, other companies to have been censured by shareholders in the 2011 AGM season include GUD Holdings, News Corp and Watpac.
Both GUD and Watpac received a "no" vote from investors who own more than a third of their shares.
News Corp’s remuneration report for the 2010-11 financial year was passed with 65% of votes in favour, while 34.9% of votes went against it. But it is incorporated in the US.
Once you strip out the 317 million votes controlled by the Murdoch family and the 57 million votes held by their great supporter, Saudi Prince Alwaleed bin Talal, the rejection was much larger (News Corp is incorporated in the US and the Murdoch interests were allowed to vote).
There were also large ‘against’ votes against the re-election of Lachlan and James Murdoch.
But possibly the most important shareholder vote of the week came at the AGM of Bendigo and Adelaide Bank where large shareholders gave the board not one, but two significant rebukes.
The first was the rejection of a board proposed resolution to reduce the size of the board from 12 to 10 directors.
That was rejected because shareholders feared that it would entrench a coterie of long term independents and executive directors and make it hard to bring in new blood, or for shareholders to stand as candidates.
Around 45% of shares were voted against reducing the size of the board: it needed a 75% majority to pass.
The second rebuff was the defeat of a motion from the company to scrap Bendigo’s "partial takeover rule" that would have allowed it easier for the bank to become a takeover target.
The rule requires that any partial bid for the bank be approved by a majority of shareholders, meaning a general meeting would have to be called to vote on the proposal.
The board had wanted to drop the requirement for a shareholder vote, thus making it easier for the company to talk a deal with potential suitors that fell short of outright control.
The rule doesn’t apply for full bids, and while rare, has happened in other companies where the initial minority stake is enlarged by the so-called creep rule which allows 3% of shares to be bought every six months.
Both these votes are much more important than the remuneration issues at various AGMs because they go to the heart of continuing shareholder control and involvement in the running of the bank, without intruding on normal day-to-day decision making.
But shareholders weren’t all opposed to every resolution, nor where the proxy groups: a proposal t
