What is a shareholder resolution?
There are two kinds of shareholder resolutions: ordinary and special.
Special resolutions, for example resolutions to amend the company’s constitution, require 75% support from shareholders.
Ordinary resolutions require a simple majority of 50% and can cover a broader range of issues.
Overseas, social and ethical resolutions are typically ordinary resolutions. This type of resolution does not require a change to a company’s constitution and is appropriate for targeting a single issue that shareholders would like to see better considered. International practice has demonstrated that institutional investors are much more comfortable supporting ordinary resolutions than amending company constitutions.
Shareholder Resolutions in Australia
Shareholder resolutions are relatively rare in Australia. During this century there have been twenty six shareholder resolutions with an environmental or social focus put forward at the AGM’s of a number of Australia’s top 200 listed companies. As is standard practice in the USA no resolution was put forward multiple years in a row and no resolution was sponsored by a church or religious group.
Shareholder Resolutions in other countries
Corporate democracy is an important part of responsible corporate governance in most developed countries. In the area of shareholder resolutions, Australia lags behind the rest of the world in terms of recognising shareholder rights as a report issued by the ACCR in 2014 demonstrates. In 2015 ACCR released a follow up report focusing on company reaction to environmental and social issues in other countries.
Most other developed countries allow some form of shareholder resolution. The US, UK and Canada, in particular, have strong cultures of shareholder engagement, and shareholder resolutions are a longstanding and effective way for concerned shareholders to achieve change in the way a company does business.
Placing resolutions on the agendas of very large companies’ AGMs promotes awareness of issues, and helps to change corporate behaviour. Resolutions on issues from climate change to child sex trafficking have been considered by company general meetings. Even when a majority of shareholders voting in favour of a resolution is not achieved, companies will often change their practices in response to the continued public pressure brought about by shareholder resolutions.
In 2006 the UK amended their laws to make it explicit that shareholders can direct the conduct of the board of directors. ACCR has been involved in a test case against the Commonwealth Bank of Australia to establish better rights for Australian shareholders to move ordinary resolutions at company AGMs. Unfortunately, this has been unsuccessful.
The case against CBA was about clarifying that shareholders can express an opinion about the conduct of the company rather than about being able to direct the board. What the experience overseas shows is that shareholder democracy can be an important part of good corporate governance and does not impose an undue burden on companies but rather helps to ensure that the are responsive to the interests and values of their shareholders.
Shareholder advocacy and corporate democracy elsewhere
One of the dominant forces in climate shareholder activism in the US has been the Sisters of St Dominic. They authored and supported a climate change resolution, which has been put to numerous companies, ‘to adopt quantitative goals, based on available technologies, for reducing total greenhouse gas emissions from the company’s operations’. In 2011, eight companies (ConocoPhillips, Dominion Resources, Portland General, Kimco Realty, Lennar Corp, Ryland Group, Norfolk Southern and Exxon Mobil) had ‘industry customised’ variants of this resolution placed on their AGM: average shareholder support was 18.6%.