Outside of the resources sector, 41 percent of shareholders at Adelaide Bank voted against its remuneration report. Severance provisions called for a termination payout to the departing CEO equal to just under 9 percent of the company's fiscal 2006 after-tax profit. Takeover target Mayne Pharma also saw strong opposition from investors to its remuneration report, with 41 percent voting against.

In the media sector, Ten Network Holdings - in one of the last meetings of the season -recorded a 37-percent against vote on its remuneration report resolution over concerns about the size of the potential termination payout for its executive chairperson and the lack of disclosure of the performance hurdles for its long-term incentives.

Outside of traditional executive remuneration issues, the listed infrastructure sector experienced its first major signs of investor dissent at the ballot box in 2006 over alignment of the interests of investors and the managers of these vehicles. Externally managed infrastructure vehicles were pioneered by investment banks Macquarie and Babcock & Brown, and usually have external management agreements. These usually allow the external manager (usually a subsidiary of the sponsoring bank) to get large fees. These vehicles also pay substantial related-party fees to the sponsoring investment banks, and the ability of investors to remove the external manager is limited, even in cases of poor performance.

Four firms --Babcock & Brown Infrastructure, Babcock & Brown Wind Partners, Macquarie Communications Infrastructure Group, and Macquarie Media Group - all recorded against votes of more than 10 percent on their remuneration reports. In response to investor concerns over the issue of aligning management fees with investor interests, both Macquarie and Babcock & Brown promised to change the remuneration structures for their staff involved in managing these vehicles. However, no changes have been proposed to deal with the fee arrangements for the external managers.

A number of emerging governance issues also influenced events during this year's Australian proxy season. Investors discovered during 2006 that a number of large capital companies had been granting equities to executive directors over a number of years without shareholder approval, under a little known change to the Australian Stock Exchange (ASX) listing rules. The ASX allows companies to make grants without shareholder approval in cases where shares are bought on the market and are not newly issued.

The ASX, after representations from investors, has reopened debate over this rule change. However, a number of institutional investors have signified their disquiet at this practice by voting against the remuneration report of any company that had not put equity grants to executive directors to shareholder approval.

The Australian annual meeting season was also dominated by debate over board responsiveness to shareholders during takeover bids, as Australia's continuing bull market spawned a series of takeover offers by listed companies and private equity bidders.

One of Australia's two largest retailers, Coles Myer, rejected a bid at a substantial premium to its prevailing share price from a private equity group during this proxy season, leading to criticism from several institutional investors. The board of car part manufacturer Pacifica Group also rejected a takeover bid earlier in 2006 before later accepting a lower offer from the same bidder after its performance failed to improve.

New Zealand
Remuneration, however, was not the only issue at the top of local investors' minds. In New Zealand, the Contact Energy annual meeting turned into a high-profile forum for minority shareholders expressing anger at majority shareholder Origin Energy's failed attempt to transform Contact into one-half of an Australia-New Zealand dual-listed company.

Contact shareholders submitted resolutions calling for the removal of the independent directors - namely, those not tied to Origin -and greater oversight of the relationship between Origin and Contact. Another resolution called for the repayment by Origin of the fees associated with the failed merger attempt.

The meeting saw significant votes cast for the removal of the independent directors, and for the removal of one of the three directors associated with Origin on the sixperson Contact board, that reached as high as just under 15 percent. Nearly 23 percent supported a measure to create an ongoing independent director committee to review the relationship between Contact and Origin.

The Contact meeting became a symbol of mounting institutional investor discontent in New Zealand over the protection of minority investors during takeovers. A growing number of New Zealand companies make use of provisions allowing takeovers to proceed with the consent of only 75 percent of shareholders and without independent review of the transaction. This practice persists despite the fact that the New Zealand Takeovers Code calls for a 90-percent consent by shareholders and a report by independent experts.

Prompted by several recent transactions that were not subject to the Takeovers Code (most
prominently, the purchase of listed New Zealand company Waste Management by Australian listed company Transpacific), the New Zealand Takeovers Panel with the support of local institutions called for changes to the law for all takeover transactions, regardless of their structure, to receive Panel approval.

*This article originally appeared in ISS' October-December 2006 Corporate Governance Bulletin.