Corporations Act changes put directors at risk of remuneration vote breaches: Chartered Secretaries

Directors who breach new regulations within the Corporations Act around who can vote on remuneration reports risk severe penalties, according to Chartered Secretaries Australia.

Under the Act, directors and “closely related parties” cannot vote to adopt a remuneration report or direct proxies on remuneration resolutions. Closely related parties of the key management personnel include:

• A spouse or child of the member.
• A child of the member’s spouse.
• A dependant of the member or of the member’s spouse.
• Anyone else who is one of the member’s family and may be expected to influence the member, or be influenced by the member, in the member’s dealings with the entity.
• A company the member controls.
• A person prescribed by the regulations for the purposes of this paragraph.

Releasing its guidelines on managing voting exclusions on remuneration-related resolutions, Judith Fox, director of policy at Chartered Secretaries Australia, says the amendments catch a whole range of people who weren’t covered before.

“It’s going to be quite challenging,” Fox says.

“Directors can’t vote their own shares and it’s clear a wife and kids can’t either. But what if you’ve got siblings you don’t talk to anymore? Or you might have a second marriage or step-child and not have a clue what’s in their portfolio.”

Fox says directors need to show they are acting in good faith, and adds that although it’s a personal liability issue, the reality is directors will be looking at companies to give them guidance.

CSA recommends the following for companies:

• Identify to whom a voting restriction applies.
• Decide how the proxy form will be set out.
• Provide relevant information to members of key management personnel (KMP).
• Provide members of the KMP with a pro forma letter with instructions for nominee companies or trusts on not voting their shares.
• Provide the details of the KMP, closely related parties and associates to the share registry and review KMP records regularly.
• Review the processes put in place by the share registry.

The amendments follow a Productivity Commission view that it is a conflict of interest for directors to be able to vote in favour of their remuneration.

It also comes as a number of high-profile listed companies recorded “no” to remuneration reports this annual general meeting season. If there a “no” vote of more than 25% for a second year running, a spill of the board can be called.