Readers may recall that we pointed out that the two strikes law has some drafting errors that mean regular shareholders (i.e. those who are not key management personnel or close associates) who lodge undirected proxies with the board chairman do not have their remuneration report votes counted.

The Australian government’s belated attempts to address the situation (reported HERE) failed to get through parliament in time for the most recent proxy season. While the amendment in and of itself is uncontentious, they tacked this minor amendment onto the significantly more controversial and unrelated Consumer Credit Amendment Bill. Not surprisingly, and as we predicted in our last report, the consumer credit legislation was a difficult and contentious piece of legislation. The remuneration report voting amendment sank with the broader Bill’s rejection in parliament, and with it any hopes of shareholders being able to exercise their voting rights.

The government’s current plans are to reintroduce the revised National Consumer Credit Protection Amendment (Enhancement) Bill 2011: Corporations Act amendment into parliament in the week commencing 21 May 2012. And some would say that this is optimistic, given the legislative load facing parliament when it resumes sitting on the 8th of May 2012.

In a recent press release critical of the government’s tardiness on this issue, the Chartered Secretaries Australia, estimated that, on the best-case scenario, and assuming previous controversies in the broader Bill have been resolved, the Bill will only get through both Houses of Parliament on June 28 (see HERE).

By this time, it will be probably too late for the amendment to be implemented by the majority of listed companies with June year-ends, as most prepare their proxy forms and notices of meeting in June and July.

How serious is this? The CSA referred to a Computershare report on the results of the 2011 year’s annual general meetings which revealed that 66 per cent of undirected proxies were not able to be counted toward the total vote on the remuneration report for this very reason. CSA’s chief executive, Tim Sheehy, indicted that this amounts to a “massive number of disenfranchised shareholders”. Most of these would be retail shareholders.

Given that the great majority of the 107 “1st strikes” on the remuneration report last year were for small companies (median market capitalisation of just $26 million), with mostly retail shareholders, this omission can make or break whether these companies receive a 2nd strike. One, in particular, could only count 3% of its shareholders as lodging a vote. Do not forget also that most of these companies had never experienced a high “no” remuneration vote before.

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