Shareholders need to know rights

By BRIAN GAYNOR

Shareholder meetings are an important part of share ownership, yet few individuals have a detailed understanding of rules and regulations that apply to them.

This is unfortunate because shareholders have considerable rights associated with these meetings and they are held on their behalf.

There are two types of shareholder meetings, annual meetings and special meetings.

Special meetings are all meetings other than the annual meeting.

An annual meeting has to be held every calendar year. It must be held not later than six months after the balance date of the company and not later than 15 months after the previous annual meeting.

Directors or a shareholder can call a special meeting.

Under section 121 of the Companies Act 1993, shareholders holding not less than 5 per cent of the voting rights of a company can require directors to call a special meeting to discuss predetermined issues or propose a resolution.

Based on the voting at the recent Contact Energy annual general meeting, where 8.5 per cent of outstanding shares voted in favour of restricting directors' retirement allowances and 6.8 per cent voted to curtail joint ventures with Edison Mission, it is possible to reach the 5 per cent threshold but it would require the backing of institutional shareholders.

A shareholder-requisitioned meeting would have been appropriate during Pacific Retail's recent bid for Bendon.

It would have given Bendon shareholders the opportunity to ask directors why they recommended the offer after Grant Samuel said it was not fair.

There were also several other issues associated with the offer that were left unanswered in Bendon's releases to the Stock Exchange.

One of the more innovative features of the Companies Act 1993 enables shareholders to give written notice to the board of a matter the shareholder proposes to raise for discussion or a resolution the shareholder intends to put to the next meeting of shareholders.

If the motion is received more than 30 working days before the meeting is due to be held, the company pays all costs associated with the motion. If the motion is received 30 days or fewer before the meeting, the shareholder bears the costs.

A company must give the proposing shareholder the opportunity to include a statement of not more than 1000 words in support of the proposal in the notice of meeting.

Graham Bulling has been the leading advocate of the shareholder resolution.

He successfully introduced a motion at last year's Restaurant Brands annual general meeting that places a tighter limit on the golden handshake paid to retiring directors.

His efforts to get a similar motion passed at the recent Contact Energy meeting failed.

Arcus Investment Management's shareholder proposal, which was aimed at requiring Contact to obtain shareholder approval before it entered certain agreements with Edison Mission, also was defeated.

One of the problems with shareholder motions is that they may be special resolutions requiring a 75 per cent majority or directors may decide that they are not binding.

The capacity to give large golden handshakes to retiring directors is included in most constitutions because the payment is enshrined in the Stock Exchange's listing rule 3.5.2. Changing this provision is difficult as it requires a 75 per cent majority.

In response to Arcus Investment Management's resolution, the Contact board noted that it has legal advice that, as the resolution proposed relates to the management of the company's business and affairs, if the meeting were to pass the resolution, the resolution would not be binding on the board (by virtue of section 109(3) of the Companies Act 1993).

Another feature of the 1993 Act is Section 109, which allows shareholders to question, discuss or comment at length on the management of a company.

A shareholder meeting can also propose from the floor a motion relating to the management of the company. The result of this resolution is not binding on the board unless the constitution provides otherwise.

Shareholders may consider using Section 109 at the forthcoming Renaissance and Trans Tasman Properties annual meetings.

But their ability to make any real progress is limited because Renaissance's managing director, Mal Thompson, owns more than 50 per cent of the company and Trans Tasman's chairman, Don Fletcher, is also managing director of the group.

A company's constitution and the First Schedule of the Companies Act 1993 govern shareholder meetings. These give the chairman considerable powers but not the ability to override shareholders' rights.

Most organisations, particularly Parliament and local government bodies, have well-established standing orders, but large companies have managed to avoid this convention.

Many organisations allow the order of a meeting to be changed if the majority of members vote in favour of the change.

At the recent Contact Energy annual meeting, chairman Phil Pryke refused to accept a Shareholders' Association motion to move the two shareholder motions towards the top of the agenda.

Pryke probably felt that he had enough proxy votes to defeat this motion, but should the interests of proxy votes be put ahead of shareholders who attend the meeting?

Although there are few black letter rules relating to company meetings, shareholders have some rights. They include:

* The right to propose non-substantive and non-binding motions. These might include: Congratulating management for their excellent performance during the year; proposing a vote of no confidence in management's performance during the year; recommending the appointment of more independent non-executive directors to the board.

* Shareholders can propose an amendment to a motion as long as the chairman is receptive, it is not unconstitutional and does not change the substance of the original motion.

* No fewer than five shareholders, or shareholders representing not less than 10 per cent of all voting rights, may demand a poll - before or after the vote.

* Requesting that the full results of a poll vote be released to the Stock Exchange, as happened at the recent Contact Energy annual general meeting.

* Shareholders may raise points of order. A point of order relates to a breach of the company's constitution, the 1993 Act or conventional meeting procedures.

* Anyone can stand for election as a director as long as he or she has been nominated by a security holder entitled to vote at the meeting.

* Shareholders may ask questions of any person standing for election as a director.

* Shareholders can question the company's auditors.

* Shareholders may also ask directors about their attitude towards non-audit work undertaken by auditors. Although auditors play an important role their reappointment is rarely discussed and shareholders are reluctant to ask them questions.

The success of a company meeting depends on shareholders and, to a lesser extent, the chairman.

If shareholders ask well-prepared intelligent questions then a meeting can be very informative. If shareholders sit meekly in their seats the exercise can be a total waste of time.

In recent weeks the Affco annual meeting was finished in 30 minutes. Shareholders asked few questions even though the chief executive resigned in unsatisfactory circumstances and the company produced a disappointing result.

By contrast, Contact Energy had a good year, yet the directors were subjected to a barrage of questions.

The attitude of shareholders, and to a lesser extent Contact's chairman Phil Pryke, was the big difference between the Contact and Affco meetings.

bgaynor@xtra.co.nz