Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for the Republic) Share this | Hansard source

A lot of things changed in our world over the last couple of years because of the COVID-19 pandemic. Kids weren't able to go to school. Many Australians had to work remotely and weren't able to go to their normal place of work. We saw sporting competitions shut down. Of course, community sports and kids sports stopped for a period of time during lockdowns. And, indeed, a lot of face-to-face meetings and procedures in our economy and our society changed. One area where there was significant change was in the administration and management of companies and corporations, particularly through legislative changes that didn't require shareholders and boards to come together face-to-face at meetings, be it special meetings or general meetings. And of course the requirement for people to be in the same room to execute documents associated with the management of corporations or legal affairs also changed. These were sensible reforms that the Labor Party agreed to, to facilitate the ongoing management and administration of companies throughout the country.

This bill seeks to make permanent some of those changes to the Corporations Act that have been introduced over the last couple of years to allow a range of governance procedures and documents to be executed virtually. Most of these changes have already been made temporarily as part of the COVID-19 regulatory relief bills, which expire next year. This bill will allow for companies to hold their AGMs either in a hybrid model—that's both virtually and with physical participation available to shareholders—or entirely virtually. But I note that, to hold entirely virtual annual general meetings, a company's shareholders must vote to amend the company constitution to allow it to do so, and a significant majority—75 per cent of shareholders—are required to vote for this change.

Whilst almost all stakeholders support the implementation of hybrid AGMs, and we don't have a problem with that, shareholder activists are concerned that entirely virtual AGMs reduce the ability of shareholders to hold companies to account. I understand that concern, and that's why Labor has concerns about this bill, particularly that element of this change, and has suggested to the government an amendment for the review of these provisions of this bill to ensure that they are operating in accordance with their intended and stated aims in a couple of years time. I will get to that in a moment.

We all know that quite often doing things virtually is not the same as being face-to-face in the room. A classic example of that is this parliament. This parliament probably could not operate wholly on a virtual basis. We require members of parliament to come to this place to debate bills that are introduced by the government, to question the government and to hold it to account at question time, but also, importantly, to vote on bills that become laws for the governance of this country. Many of those laws required significant changes for the country to cope with COVID-19. We probably couldn't have done all of that virtually, and we didn't. Yet here we have the government asking companies to do exactly that—to have the option of holding all of their meetings in a virtual situation. When you've got literally thousands of shareholders in a public company, that can become quite difficult. It's not uncommon for people to report that their questions went unanswered in virtual settings, at either annual general meetings or other meetings of companies, and that it's more difficult to raise issues in general business at company meetings. Some of the significant reforms that the previous Labor government put into place to hold boards to account to their shareholders, particularly for controversial decisions such as remuneration reports, are undermined by a virtual-only platform setting for these types of meetings.

Going back a decade, remuneration reports for particular companies were quite controversial. We all recall the situation where particular directors and executives of companies were earning ridiculously inflated salaries—sometimes 40, 50 or 100 times the average wage of a person working in one of those corporations. There was an uproar. There was a movement of Australians that got together and requested reform from the government, and that is what the previous Labor government did by introducing the two-strike rule such that remuneration reports had to receive the overwhelming endorsement of the members or the shareholders of that company, and they might receive a strike. In other words, the shareholders voted down that remuneration report because they felt that it was unrealistic, that it was out of kilter with the remuneration of other executives within the company, or that the company wasn't performing to the expectations of the shareholders and therefore the bonuses that shareholders were receiving didn't meet the expectations of the shareholders.

A classic example of this is that, during the period of the crisis in financial services in this country that led to the banking and financial services royal commission, there were plenty of remuneration reports of the big four banks and many other financial institutions that were struck down, particularly in the first instance. Those laws and those changes allowed those boards to be spilled if there was a second strike on a remuneration report.

When Labor introduced these reforms, the opposition at the time screamed and howled and said that it would be the end of proper governance of companies, that Australian boards would be uncompetitive compared to international scenarios and that we wouldn't be able to pay our CEOs and executives fairly to attract talent to this country—the usual stuff that they do in sticking up for the boards and the excessive salaries of people in large corporations, particularly in the banking and finance sector in this country. But when those reforms were introduced, against the protestations of the then Abbott led opposition, they became widely accepted and they are now part of the corporate landscape in this country. They provide balance, reason and the opportunity for shareholders, through a democratic process, to hold their boards and executives to account for remuneration and other decisions. That was a sensible reform that has been left in place by the government. It has now accepted it as part of a prudent and accountable regime to ensure better outcomes and better management of corporations in this country.

We're now starting to see that shareholders want to make sure that their boards are accounting for and have proper risk management plans and strategies to deal with the increasing risk of climate change. That is a completely understandable scenario for shareholders. If I were investing in in a particular company and I knew there was a shareholder risk associated with climate change, particularly in the energy sector, then it would be prudent as a shareholders to know what actions that particular board was taking to mitigate those risks for shareholders and ultimately to do their bit to ensure that they are good corporate citizens and are doing everything they can to reduce the company's emissions footprint over time. These are important facets of the management of corporations that are best dealt with face to face, particularly if there's a particular motion that shareholders wish to put to a board and wish to speak on at an annual general meeting.

That is why Labor believes it is important that there is the option for shareholders to continue to have face-to-face annual general meetings and other meetings—to hold those boards and executives to account for the management of that particular company. The Australian Shareholders Association, which represents shareholders in this country, says that virtual-only meetings 'reduce access for retail shareholders and transparency by company boards and management' and the feedback from their members pointed to the perception that questions were going unanswered during virtual meetings, and some had concerns about companies in a virtual environment having more control with regard to not answering those questions.

This year we also saw initial technical problems, such as with bandwidth—you expect that with the dodgy NBN that's delivered by this particular government—along with other issues around resolving how people, from the chairman to management and shareholders, could interact from various locations. If you have a big company with a large number of shareholders, it's not uncommon in Australia, given this government's dodgy NBN, that at a particular meeting you have several board members and a few hundred shareholders all trying to get access to a meeting to have their say, but the bandwidth in Australia simply isn't good enough to cater for that, unfortunately. It simply isn't good enough to deal with those sorts of scenarios. That is why shareholders are saying, 'We want to make sure that there's the option to have face-to-face meetings in the future, when it's safe to do so and the health regulations permit it. In these instances, investors weren't able to put questions to any board member, and this raises issues of accountability. We know that for many retail shareholders the AGM is the only opportunity they have to see and hear from all of their directors and hold them to account and question them. Unlike institutional shareholders, these retail shareholders don't typically receive briefings from companies between AGMs, nor are company directors and senior management as accessible to retail shareholders as they are to institutional shareholders.

Dean Paatsch, a proxy adviser on service ownership matters, says that many investors are:

… wary of over-reach by boards and their advisors who might use COVID as a pretext for a permanent shift to online only to avoid scrutiny.

That's what we want to avoid here with this particular bill. We want to make sure that it is not used to provide opportunity for some boards to avoid scrutiny and accountability to their shareholders. This bill does have stipulations that require companies running virtual or hybrid AGMs to allow members as a whole to exercise those rights to ask questions and to make comments. But, as I said, if the line drops out and the meeting is concluded and you don't get the opportunity to have your say, it's very difficult for a retail shareholder to get that opportunity again. Virtual and hybrid AGMs also make it more likely that accessibility issues in rural and regional areas or with disabled shareholders may create some difficulties in accessing those answers.

During the last couple of years, with the pandemic, Labor supported the temporary emergency measures. But any permanent change must not tip the rights away from shareholders to company directors. That's why we see it is important that there is balance and the opportunity for shareholders to hold their boards to account, particularly those retail investors. That's why we've been suggesting to the government that they should consider amending this bill and to look for an independent review to be conducted within two years of implementation, with particular emphasis on the ability of small shareholders to hold company directors to account through general meetings. That would be a sensible reform to this bill—to ensure that that appropriate balance is there and that we can, as a parliament, check in a couple of years' time that the bill is performing as intended and that boards are being held to account by their shareholders, ensuring that we have good corporate governance in this country in all of our corporations into the future.

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