Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Hansard source

Labor supports this bill and I am pleased to offer my contribution in supporting this bill passing the parliament. I do wish to make some comments about the comments just made by the member for Berowra, though I am conscious of his points about reducing red tape, which I find somewhat ironic, given that earlier we had the member for Higgins introduce the report of the Economics Committee. It actually advocates increasing red tape for foreign investment in Australian property by imposing a proposed levy. I understand that the Economics Committee discussed a figure of between $500 and $1500; today we learnt that the committee is now proposing the higher end of the range, $1500. When we talk about reducing red tape it is easy for those opposite to adopt a holier-than-thou approach on these issues, but we need to be conscious that there was some hypocrisy in the comments of the member for Berowra. Nevertheless, Labor is pleased to support these reforms because they are sensible—they make a sensible addition and changes to our corporate landscape.

Labor has a proud record of improving corporate governance, transparency and accountability in decisions of government, particularly with respect to their obligations to shareholders, workers, customers and the general public. During the course of the last Labor government, a number of reforms were introduced that not only improved safety for workers and the public, ensured greater competition in a number of industries and Australia generally, but also provided reliable accounts and information, particularly on executive remuneration. Over a number of years we have seen outrage in the community not only by shareholders but the wider community about some of the ridiculous remuneration packages and bonuses that were paid to corporate leaders in this country and throughout the world. Through such measures, Labor introduced a corporate regime that is one of the most robust and responsible anywhere in the world. This bill meets those conditions and on that basis we are pleased to offer support.

Items 1 and 2 of schedule 1 of the bill amend the Corporations Act to better balance the rights of shareholders to raise issues with a company against the cost to companies of being required to call and hold general meetings. This relates to the so-called '100-member rule', which creates an obligation on a corporation to hold a general meeting if requested to by 100 or more shareholders. That requirement will be removed by this bill. The requirement that a general meeting be held if requested by five per cent or more of shareholders will remain.

Importantly, the proposed amendment does not affect the right of 100 shareholders to put up a resolution to be considered at a general meeting or to distribute a shareholder statement with the notice convening that meeting. So the changes do not affect the ability of 100 or more shareholders to engage in activism. That is very important and that is the way it should be, because shareholder activism is an important component of corporate governance. What these amendments do is ensure that the operation of this provision does not burden companies with the cost of having to hold extraordinary general meetings where this is unreasonable. There have been examples in the past. Woolworths was required to call an extraordinary general meeting on the issue of $1 limits on poker machines—and the cost of convening that meeting was close to half a million dollars. Over many years the NRMA had to call a series of extraordinary general meetings. It is estimated that the cost of those meetings was in the millions of dollars. The proposed amendment is a sensible reform, one that ensures that an appropriate balance remains between the right of shareholders to put resolutions at general meetings and the need to ensure that, in doing so, the costs imposed on the companies involved are not unreasonable.

The second element of these reforms is improving remuneration reporting. Years ago in Australia, shareholders became increasingly concerned, even outraged, at the size of executive remuneration packages—pay, bonuses, shares and share options. These were being paid even where executives were, by any reasonable measure, failing in their duties, as reflected in the performance of their companies. We saw situations where executives presided over falls in the share price and/or falls in the profitability of their companies yet still commanded outrageous remuneration. This created angst within the community, particularly amongst shareholders. Many saw the outcomes as being unfair and unreasonable.

Labor acted on those concerns. It responded by implementing a fairer system that put shareholders, particularly institutional and mum-and-dad shareholders, first. The current shadow Treasurer, then the Assistant Treasurer, introduced reforms in July 2011. They became known as the 'two-strikes rule', which holds directors accountable to shareholders for executive salaries and bonuses. These reforms have led to a much more responsible and reasonable approach to executive remuneration being taken in this country. I think it is fair to say that the system has worked.

The way the system works is that companies have two opportunities, from the perspective of accountability to shareholders, to get their executive remuneration right. If a company's remuneration report receives a shareholder no vote of 25 per cent or more at an annual general meeting, that is the first strike. If there is another strike in the second year—if the company's subsequent remuneration report again receives a no vote of 25 per cent or more—there can be a vote to spill the board. In other words, there can be a vote on whether or not all directors need to stand for re-election. That subsequent vote to require a re-election of the board needs a majority of 50 per cent plus one to pass. If it does receive that majority, the election for directors has to be held within 90 days. As I said, this is a model which has worked. It has seen companies take a much more reasonable approach to executive remuneration. The stories of outrageous executive salaries and packages have dissipated—and that is a positive thing. Labor is very proud of its record of improving remuneration reporting and dealing with executive remuneration. Concerns were raised by shareholders and users of remuneration reports and we dealt with them.

Labor also supports removing the unnecessary requirement for unlisted disclosing entities that are companies to prepare a remuneration report. Unlike listed entities, they are not required to have their remuneration report adopted by shareholders through a non-binding resolution and they are not subject to the two-strikes test. In this respect, the reform in this bill is supported.

This bill also makes changes so that listed disclosing entities that are companies must disclose the number of options that lapse during the financial year, as well as the financial year in which those options were granted, for each member of the key management personnel. There will, under the changes introduced by this bill, be no obligation to disclose the value of options that lapse or the percentage value of remuneration that consists of options for each member of the key management personnel. Again this is a sensible reform that has Labor's support.

The bill makes an number of amendments that will improve the value of the information in remuneration reports. This goes to item 6 of schedule 1 of the bill, which clarifies the circumstances in which a financial year may be less than 12 months. There is confusion about conditions under which directors may determine that a financial year is shorter than 12 months, and these reforms clarify that.

Finally, in respect of the appointment of auditors, items 7 to 9 of schedule 1 of the bill amend the Corporations Act to exempt certain companies limited by guarantee from the need to appoint or retain an auditor. Currently all public companies, including companies limited by guarantee, are required to appoint and retain an auditor. This bill amends this so that small companies limited by guarantee, and those companies limited by guarantee that have their financial reports reviewed, are not required to appoint or retain an auditor. This means that companies that are not required to undertake an audit no longer have to retain an auditor. Again, this is a sensible reform that Labor is pleased to support.

The bill also amends the ASIC Act in respect of the operation of the Takeovers Panel. Labor sees this as an improvement and is happy to support it.

On the whole, these are sensible amendments to Australia's corporate landscape. They build on Labor's achievements in government of making our corporate legislation more representative of the interests and aspirations of shareholders, of workers, of customers, of clients and of the Australian public. We believe that these sensible reforms and the Labor reforms that were put in under the previous government should make Australia a more attractive place to invest. On that basis I am happy to commend the bill to the House.

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