No changes without big boys' backing but publicity aplenty

By Peter V O'Brien

Friday 1st March 2002

The shareholder proposals to be considered at the annual meeting of Contact Energy on March 11 are practical examples of the increased powers given to shareholders under the Companies Act 1993.

Contact shareholders will consider resolutions on directors' retirement payments and on transactions between the company and Edison Mission Energy or any of its related parties (related-party transactions).

It is unlikely either resolution will be passed. A comment in Contact's notice of meeting said there were no restrictions on any shareholder voting for or against either of the shareholder proposals.

The company had received legal advice, which the Stock Exchange confirmed in relation to the application of the exchange's listing rules and the company's constitution, that entities of principal shareholder Edison Mission Energy may vote on both shareholder proposals.

Edison Mission owns 51.2% of Contact after the failure of its bid to acquire 90% of the company.

Comments in Contact's notice of meeting suggested board members were opposed to both shareholder resolutions, which leads to the conclusion that Edison would vote against them.

Instigators of the shareholder proposals obviously were aware of Edison's voting power and the group's probable opposition to the proposals.

That does not mean the proposers have lost everything, given they can put a case to the meeting and to other shareholders and the investing public through the media.

They also benefit from putting their case at no expense to them. Costs of organising opposition to companies were a major deterrent to shareholder action under the 1955 Companies Act.

Contact's notice said the company's constitution allowed a shareholder, by notice to the board, to propose a matter for discussion or resolution at the next shareholder meeting.

The board must notify all shareholders of the shareholder proposal and must include any shareholder statement made in support of the proposal, provided the shareholder gave sufficient notice.

That was technically correct, in the sense of Contact's constitution allowing shareholder proposals, but the constitution had to allow them. The company was not allowed to opt out.

Provision for shareholder proposals starts in section 124 of the Companies Act, which refers to proceedings at meetings: "The provisions of the first schedule to this act govern proceedings at meetings of shareholders of a company except to the extent that the constitution of the company makes provision for the matters that are expressed in that schedule to be subject to the constitution of the company."

Clause 9 of the first schedule sets out the procedure for shareholders' proposals but the clause, unlike some others, omits the magic words "subject to the constitution of the company."

That means companies must allow shareholder proposals. It is immaterial whether proposals are specifically mentioned in the constitution; the provision would be implied in any dispute.

Procedures for shareholder proposals are elaborate.

If notice of a proposal is received by the board not less than 20 working days (excludes weekends and public holidays) before the last day on which the board must give notice of the relevant shareholders' meeting, the proposal must be sent to shareholders at the company's expense.

The shareholder must bear the cost if the board received notice not less than five working days and not more than 20 working days before the last day on which notice of the meeting was given.

Costs are also chargeable to the shareholder if notice of the proposal is received in less than five working days but in that case the board "may, if practicable" circulate the proposed resolution.

That is a double qualification. The board would first decide the "if practicable" bit and then "may" take action, apparently not "must," although the issue of reasonableness could arise.

The chances of a shareholder proposal getting passed as a resolution at a New Zealand-listed company meeting are minimal unless it receives support from significant institutional shareholders.

Few companies lack dominant, or effectively dominant, shareholders.

An individual shareholder would have little show of winning in a such a group. The job would be easier in companies with a good spread of shareholders but still difficult without institutional support.

Those are the facts of corporate life, irrespective of the nonsensical publicity one or two mavericks get when they sound off at company meetings and get swamped by many millions of votes to a hundred or so.

Even so, publicity can affect the handling of shareholder proposals. Some shareholders would be happy with any publicity and shrug off a massive defeat. Others, with institutional support, could embarrass directors into heeding the call behind the formal resolution.

A company chairman might metaphorically slap down an individual shareholder with 1000 or so shares.

Much more respect would be given to fund managers representing one or more of the country's major financial institutions, which could be several times bigger than the particular company.

Last week's column referred to BHP Billiton's net profit under Australian Gaap as $US1.77 billion." It should have read "$US1.177 billion."

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