David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Hansard source

Thank you very much. I want to address the question of the two-strikes test, which is at the very heart of these reforms. These are the reforms that would be under threat if the opposition's amendment were to be approved. Under the two-strikes test, as has been indicated, where more than 25 per cent of shareholders vote against a remuneration report on two consecutive occasions, it would then give rise to an opportunity to vote on a spill resolution. If a 50 per cent majority were achieved on that spill resolution, that would then trigger a spill of the board. The two-strikes test is absolutely central to this package of reforms because it is the one mechanism that provides shareholders with leverage in this entire set of arrangements. To emasculate the two-strikes test is to strike at the very heart of these proposals.

The proposition that is being put forward is that the bill as it stands before the House should be amended so that that test should change from applying to 25 per cent of the votes cast to 25 per cent of shares issued. That does not seem like a significant change, but it is a very significant change. If this change were to be adopted, if this amendment were to be adopted, it would strike at the very heart of this package of reforms. It would make it almost impossible for shareholders to spill a board. We certainly do not see the spilling of a board as a first port of call; it should always be an absolute last resort. But we are serious about providing shareholders with an opportunity to spill boards where they have been recalcitrant: where they have failed to respond to the concerns of shareholders over two consecutive years. To move from a position where the 25 per cent is measured against votes cast to a position where the 25 per cent is measured against total available votes—that is, if you do not turn up to vote your vote is counted as being a vote in support of the remuneration report—is to strike at the very heart of this package. The Productivity Commission, in their extensive deliberations on these matters indicated that at present, on average, about 58 per cent of shares are voted at the AGM. Of those 58 per cent of shares voted, under our proposal there would need to be 25 per cent of those people indicating a 'no' vote, casting a 'no' on the remuneration report. If the coalition's amendments were to be adopted and included as part of this package of reforms, the 25 per cent would effectively be a 44 per cent vote.

I know that many contributors to this debate and many stakeholders simply said, 'Increase the 25 per cent to 50 per cent.' We have adopted the recommendation of the Productivity Commission in this regard. It is a non-binding vote, and we believe that 25 per cent is calibrated at the appropriate level. If the coalition are serious about increasing the level they should just come in here and move 50 per cent. They should not try and do it through this backdoor method, emasculating the two-strikes test by indicating that the 25 per cent should be in reference to total votes issued.

There are a couple of good reasons why it would be a travesty if these amendments were to be adopted. The first one is that this whole package is about greater accountability. We want to make boards more accountable to shareholders, but under the coalition's amendments we would actually make them less accountable—we would strip away some of the power that this bill is intended to give shareholders. So on accountability it would be a step backwards. This package above all else is about shareholder engagement. It is about saying to boards: 'We want you to engage with your shareholders and allow them to understand the principles behind the remuneration packages that you are awarding. Let them be fully informed of the dynamics that have driven your decision to award your executives salaries of the levels that you have been prepared to award.' We want more shareholders being engaged as part of this process.

One of the perverse incentives of the coalition's amendments is that they actually discourage boards from engaging with shareholders. To explain this I want to make a very simple point. I said earlier that the Productivity Commission had said that on average only 58 per cent of shares are voted at an AGM. Under the coalition's proposal, if fewer than 50 per cent of shares are voted at the AGM the two-strikes test can have no application; it can never work. What they are indicating—bearing in mind that that 58 per cent is an average, so for every company that has a higher turnout than 58 per cent there are others who will have a lower turnout—is that for those companies the two-strikes test, the very centrepiece of this package of reforms, would have no effect because it could not be applied in those circumstances.

The other point that I would make is that the coalition propose to amend the reference point in relation to the 25 per cent trigger, but they have not proposed to do that in relation to the spill motion. So it is theoretically possible for the threshold for the spill motion to be higher than the threshold for the trigger. That runs counter to the philosophy of this, which is all about the triggers. The non-binding votes are about giving shareholders an opportunity to express a view without spilling a board. But if they express that view on one occasion and they come back to the AGM the next year and they do it again, and the board still does not respond to their concerns, then there must be an ultimate sanction, being the sanction in the form of the spill resolution. I would certainly be putting forward the proposition, through you, Deputy Speaker, that the essence of these reforms will be put in jeopardy if such an emasculation, such a watering down, such a weakening of the two-strikes test were to be adopted.

In summary, this bill will give unprecedented power to shareholders, improve the accountability of company directors on remuneration issues, address conflicts of interest that exist in the remuneration setting process and promote a culture of responsible remuneration practices. I commend the bill to the House.

Question agreed to.

Bill read a second time.

See this speech in context