By James Lonie, Partner; Christina Seppelt, Special
Counsel;Sunil Patel, Partner;Robert Tracy, Partner and Glenn
The 'two-strikes' rule is entering its second AGM
season. Should listed companies, particularly those who received a
'first strike' in 2011, be looking carefully at their
remuneration framework and shareholder engagement to avoid the risk
of a board spill?
In 2011 the Corporations Act 2001 (Cth) was amended to introduce
a 'twostrikes' rule for the adoption of remuneration
reports by listed companies. The 'two-strikes' rule gives
shareholders the right to vote to spill a board of directors, if
25% or more votes cast are against adopting the company's
remuneration report at two successive AGMs.
During the 2011 AGM season, over 100 listed companies (or about
5% of all listed companies) attracted a vote of more than 25%
against adopting their remuneration report, thereby receiving their
What happens if a listed company has received a first
A listed company that has received a 'first strike' must
ensure that its remuneration report in the subsequent year provides
an explanation of the board's proposed action in response to
shareholders' concerns, or an explanation as to why no action
is proposed to be taken.
If the remuneration report again receives 25% or more
'no' votes at the subsequent year's AGM, the listed
company will receive a 'second strike' and shareholders
will be permitted to vote at that AGM on whether the board is to be
spilled and another meeting (spill meeting) held to consider the
election of directors. If 50% or more shareholders vote to hold the
spill meeting, the spill meeting must be held within 90 days and
all persons who held the position of director when the remuneration
report was considered will be forced to vacate their office and
stand for re-election.
What should listed companies do?
As listed companies prepare for the upcoming AGM season, it is
important for remuneration committees to be mindful of the
'two-strikes rule' and the consequences of receiving two
successive 'no' votes.
Listed companies should consider:
when determining the appropriateness of executive remuneration,
any apparent shareholder concerns and developments in the rest of
the market (for example, the number of high profile executives
offering cuts to their remuneration packages this year);
board succession planning;
contingency plans in the event of a board spill; and
the way in which they engage and deal with remuneration
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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