'No Comments Please' - limits to shareholder activism at AGMs confirmed in ACCR v CBA

The recent Federal Court decision of Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2015] FCA 785 confirms that:

• the responsibility for managing a company is ultimately held by a company’s board ; and

• the ability of shareholders to control or comment on the board’s exercise of its powers in respect of management is limited.

The case highlights:

• that there is no general entitlement for shareholders to express opinions on the management of the company by passage of non-binding resolutions;

• the importance of appropriately defining the powers of the board and the powers of the shareholders in a company constitution; and

• section 249O of the Corporations Act 2001 (Cth) does not compel directors to convene a meeting to consider resolutions proposed by shareholders if those resolutions relate to management issues.

Background

In 2014, the Australasian Centre for Corporate Responsibility (ACCR) gave notice to the Commonwealth Bank of Australia (CBA) pursuant to section 249N of the Corporations Act 2001 (Cth).

ACCR, which represented over 100 shareholders of CBA, submitted a requisition to the CBA that three resolutions (or at least one of the following resolutions) be put to the shareholders at the CBA’s Annual General Meeting (AGM) in November 2014.

In summary, the proposed resolutions were as follows:

• that the directors procure the preparation of a report that provides information relating to the CBA’s greenhouse gas emissions, the level and nature of certain risks and mitigation strategies adopted by the CBA; or

• that the shareholders express their concern at the absence of any information relating to greenhouse gas emissions, the level and nature of certain risks and mitigation strategies in the annual report; or

• that the constitution of CBA be amended to insert a requirement that the generation of greenhouse gas emissions for which the CBA is responsible be reported on by the directors.

When issued by the CBA, the AGM’s notice of meeting contained only the third resolution to amend the constitution.  The third resolution was accompanied by a statement from the directors of CBA that they did not consider the proposed amendment to be in the best interests of the shareholders, and that the board recommended that the shareholders vote against the proposed resolution.

ACCR sought declarations from the Court that each of the proposed resolutions could validly be moved at an AGM of CBA, and that CBA’s management acted outside its powers by offering an opinion in relation to the third resolution that was actually proposed at the AGM.

Findings of the Court

In relation to the first two proposed resolutions, the Court applied the ruling in National Roads & Motorists’ Association v Parker (1986) 6 NSWLR 517, and confirmed that it is not a function of the shareholders of a company in a general meeting to express an opinion by resolution as to how a power vested in the board should be exercised by the board.

The Court found that CBA’s constitution, in accordance with convention, vested responsibility for the management of the company exclusively in the board, and that the shareholders represented by ACCR could not attempt to control the directors in the exercise of that power or direct the board by resolution to exercise that power in any particular way.

Specifically, attempting to compel the directors to report on greenhouse gas emissions and mitigation strategies, or expressing an opinion as to the dissatisfaction of the shareholders in relation to the absence of such reporting was an encroachment on the board’s powers. 

Accordingly, the court held that the first and second resolutions were not required to be put by the CBA to the shareholders at the AGM despite the requirements of section 249O of the Corporations Act 2001 (Cth).

In relation to the third resolution, which was put to the shareholders at the AGM, the Court determined that it was well within the powers of the directors granted by CBA’s constitution, and their duty to provide shareholders with information material to making a fully informed decision, to provide a statement expressing the board’s views regarding the third resolution.

Accordingly, ACCR’s application was dismissed by the Court.

A win for the board

The decision provides some comfort to boards in confirming that, where they are vested with powers over the management of a company, the ability of shareholders to criticise or interfere with the exercise of the management powers of the board is limited.

The outcome may have been different if the shareholders had been vested with powers relating to the management of the company. Much depends on the wording of a company’s constitution and any shareholders agreement that may exist.