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Fix ‘flawed’ shareholder resolutions: ACSI

Fix ‘flawed’ shareholder resolutions: ACSI

Jessica Yun
— 1 minute read

Institutional shareholders should be allowed to bring non-binding resolutions on topics like climate change, labour practices and corporate governance at company meetings, argues the Australian Council of Superannuation Investors (ACSI).

In a report titled Shareholder resolutions in Australia: Is there a better way?, ACSI argued that the absence of an adequate company-engagement mechanism was resulting in disengagement and poor returns for shareholders, causing it to call for reform.

Commenting on research in the report, ACSI chief executive Louise Davidson said: “There is a clear consensus among investors that the current framework is too restrictive and needs to be reformed.


“Australian laws make it difficult for shareholders to hold public companies to account on some important environmental, social and governance (ESG) issues.”

Under the existing framework, the report indicated that shareholders wanting to raise issues only had two options: to “propose a constitutional amendment” or to “vote against the re-election of directors”.

With the only alternative to the former being to vote off one or more directors, to effect change in this way would be a “blunt instrument to use”.

We need to develop a better way for shareholder concerns to be heard,” Ms Davidson said.

Drawing upon US and UK models of non-binding resolutions, the report argued that such resolutions had the effect of improving shareholder-company engagement.

“In other jurisdictions where non-binding shareholder resolutions are permitted,” Ms Davidson added, “we have seen shareholders use them to improve company disclosure on risks associated with sustainability, climate change and labour and human rights.”

Indeed, these non-binding shareholder resolutions would not even need to “pass” for them to be successful; often, a “win” came in the form of “awareness” and “engagement” with the board.

“Decisions to withdraw resolutions likely indicate that the investor has received some commitment from the company to change, or at least it is prepared to engage with the investor on what that change looks like,” the report said.

“The high level of withdrawn resolutions in the US suggests [that] shareholders see merit in filing a resolution to start a dialogue, yet are open to withdrawing it if the desired change (which may be a workable compromise and not necessarily the exact degree of change envisaged by the shareholder) is achieved.”

It also put forward four “reform options”: a “general-purpose non-binding shareholder resolution”; an “annual mandatory but non-binding vote on the annual report”; a “non-binding vote on a sustainability or ESG report”; or a “general-purpose directive (binding) shareholder resolution”.

While the report identified issues with all four options, the first option of a non-binding shareholder resolution was found to be most favourable among investors as it was “in keeping with the existing engagement culture” and “would complement the ‘engagement first’ approach and provide a mechanism to escalate issues where engagement had failed to achieve a commitment from the company to undertake meaningful change”.

“The business case for the proposed reform is solid,” Ms Davidson said.

“Investors and companies are increasingly focused on financially material ESG issues.

“Ultimately, we want to see all companies better managing climate-related, labour and human rights or disclosure risks.”


Fix ‘flawed’ shareholder resolutions: ACSI
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