NZSA Best Practice

Standard Shareholders Resolutions
(updated February 2006)
The following resolutions have been prepared by the NZSA, for consideration by shareholders.    Any shareholder can present a resolution to a company, for consideration at an AGM.  There are some timing issues to consider – the resolution will be circulated to shareholders at the cost of the company provided it is received within a prescribed time before the AGM.  If received late, it will be circulated at the cost of the shareholder.   Accordingly, we suggest any resolutions are sent prior to the AGM being notified.
These resolutions are for shareholders to consider, and can be “cut and pasted”, amended, and any particular one can be deleted as shareholders think appropriate to their particular company or companies.
In order to prevent your particular target company being swamped with a series of these resolutions, we suggest you always contact NZSA  (Oliver Saint - judenol@ihug.co.nz )prior to submitting one of these to a company, so some degree of co-ordination is achieved.

1. That the minutes of the previous AGM, including details of discussions, be presented to the AGM for comment by shareholders.

Explanatory material

It is standard procedure in most forms of meetings that the minutes of the prior meeting be submitted for approval and comment.  There's no reason why this process should not be followed at an annual general meeting.  It encourages a sense of “corporate memory" and allows unresolved issues to be dealt with.

It would also ensure that any undertakings entered into by any person on behalf of the company, to the shareholders, be recorded and acted upon.

It is a requirement of the Companies Act that minutes of meetings be kept.  It is accordingly appropriate that shareholders have the opportunity to comment on the form and contents of minutes that are kept of what are the shareholders meetings.

1. That non-executive directors seeking election or re-election address the AGM outlining the reasons shareholders should support their election.

Explanatory material

The election of a director to a position on the Board is an important step in the governance of the company.    When seeking re-election, the re-appointment is not automatic.  It is appropriate that the director advise the meeting  the reasons why s/he believes it is appropriate that s/he be appointed to this position in the company.   That a director has been on the Board for a number of years and is well known to the shareholders is not sufficient.   What that director brings to the future of the company is the key issue.

 

1. That it be a condition of any appointment of auditor engaged by the company, to expressly undertake a duty of care to those shareholders of the company existing as at the date of the auditors’ report.

Explanatory material

The purpose of appointing an auditor is to protect the owners of equity from malfeasance or misfeasance by officers of the company.  Yet company law establishes that auditors are only liable to  “the company".  This resolution would make the auditors liable to the owners of the company -- in other words, directly liable to the people who are relying on them in fact.  Without that liability, the audit process is not robust or accountable. 

A direct consequence of the auditors assuming direct liability is that the cost of the audit process is likely to increase.  The reason for that is that the consequences of a failure in the audit process is likely to be actual liability.  This would replace the “nominal" liability of the auditors to the company,  where the company is controlled by the officers of the company, who are the very people most likely to commit misfeasance or malfeasance.

It should be noted that the direct liability of auditors to owners is no different from the liability of auditors to partners in any partnership.
It should also be noted that the audit function involves locking the door after the horse has bolted.   There is a good argument that the liability of auditors should be limited in some way, but that may require a legislative measure.

1. That in each set of annual statements presented to shareholders, the company present a trend statement including all the information set out in the schedule annexed, on white paper, in black ink, Arial font, 12 point.

Schedule:

5 Year Trend Statement

Explanatory material

The New Zealand Shareholders Association Inc has looked carefully at the financial information that is meaningful and relevant to owners.  The five-year trend statement proposed in this resolution represents information that is of benefit to every investor, from the relatively unsophisticated to the expert.  Because it covers a reasonable period of time, trends are readily apparent, even when accounting standards and treatments change.  It is far more difficult to disguise adverse trading results when this form of reporting is used.

The format required is simple, clear, and readable.  Fancy colours, patterns, photographs, and backgrounds are to be avoided.  Cold, hard, simple information is all that is requested.

1. That the following Special Resolutions be put:

That the Constitution of the company be amended to provide:
(a)     That no director shall apply any undirected proxy votes in support of the election or re-election of any director

(b)     That no subsidiary of the company may enter into any major transaction  or approve any major transaction without a special resolution of the company

(c)     That any reference in this Constitution to the Listed Issuer Rules of the New Zealand Exchange Limited be a reference to those rules existing as at 1 June 2004.

(d)     That every proxy voting form require a shareholder to elect: for, against, undirected or abstain, and any form submitted without a positive election of one of these four options be deemed to be an abstention (entitling the proxy holder to attend and speak, but not vote).

(e)     That every proposed change to a scheme authorised by shareholders pursuant to Listing Rule 7.3 require shareholder approval before it can be effective
 
 
Explanatory material

(a)

The listing rules prohibit a director from exercising undirected proxy votes in relation to the settlement of directors salaries.   This is due to the conflict of interest s/he faces when exercising any such votes.   Inexplicably, the listing rules do not prohibit the director using such undirected proxy votes in favour of her/his own election.  The conflict of interest that arises from such use of undirected votes is clear, obvious, and its omission from the listing rules inexcusable.

(b)

This constitutional amendment is necessary in order to avoid the company selling all its assets simply by selling each asset to a separate subsidiary company and having the subsidiary company agree to sell all and every such asset.

This is the type of transaction that occurred in the case of Fletcher Forests Ltd, and this constitutional amendment is a direct consequence of the decision of the High Court in relation to that issue, where only a majority decision of shareholders was held necessary.   Transactions of this nature can so alter the business, that a special majority resolution should always be required. 

Investors in this company do not wish to wake up one morning to find that the shares are now represented by cash in a bank account.  They have invested in the business, and that business should only make significant changes in direction with their express approval.

(c)

This company has accepted an auto pilot provision into its constitution.    This allows the New Zealand Exchange in effect to change the constitution of this company without reference to shareholders and without your approval.   

Whether that device is legally effective is something currently unresolved.  If left unresolved, and if not legally effective, the consequences to the company could be disastrous.    Directors could be personally liable for actions taken that breach the Companies Act.    Meetings held, including this meeting, could be deemed unconstitutional and of no effect.

It is not appropriate to have this company suffer under that level of uncertainty.   This resolution will cure that issue.

Each year, the date can be changed by further special resolution, should the Listing Rules have been altered since the last AGM.  That would keep the company up-to-date with its obligations under its listing agreement, and remove any uncertainty as to what constitutional provisions will apply at any particular point in time.  It is a simple answer to an otherwise complex and legally fraught question.

(d)

Proxy voting forms currently only allow a vote for, against, or undirected.   This disadvantages shareholders who wish only to vote on one or less than all of the resolutions on a proxy form.   This amendment gives all proxy voters the full range of voting behaviour available for each resolution, and where they do not choose to vote on a resolution, the vote is deemed an abstention rather than being appropriated by the proxy holder as an undirected vote.

Consequently, the voting process is fully transparent and fair, making every vote count.   It does, however, require every shareholder to think about how they wish to respond to every resolution before them.   That is an additional benefit.


(e)

Listing Rule 7.3 requires that certain schemes come before shareholders for their approval.   However, once approved, changes to such schemes only require NZX approval.

In Australia, the ASX requires that such changes also require shareholder’s approval.

Clearly, if initial approval is required of shareholders, then changes should also require shareholders approval.  Any other result renders the initial approval process meaningless.

The schemes at issue tend to dilute the value of shareholdings, and accordingly are of concern to shareholders.  Changes to an approved scheme may not further dilute value, but  the only guarantee of that, is to subject it to shareholder scrutiny.   Changes that will certainly further dilute shareholder value should obviously require their further approval.

Aligning the NZ and the Australian requirements is an additional benefit from this proposal.

1.           That  the company present to shareholders each year a remuneration report that complies with the requirements from time to time of the Australian Stock Exchange, together with a resolution for the (non-binding) approval of the report by shareholders.

Explanatory material

In most businesses, the owners negotiate the salary of staff directly.    The company model filters out this direct interface, but the tension between the rewards to owners and the rewards to employees remains.    This proposal, recently adopted in Australia, provides a means of restoring some degree of oversight by owners, in a way that is significantly more direct that trying to interpret what the financial details in the annual accounts disclose.

Most people acknowledge that “our staff is our most valuable resource”.    This proposal affirms that principle, and seeks to bring staff and owners more directly accountable to each other.    The most valuable resource of the business is the one that should be most carefully considered by the owners.   This proposal facilitates that consideration.

The resolution required is expressly non-binding, to allow the Board full flexibility in meeting the demands of the market.   But it also does require the Board to be fully accountable for the decisions made.