Revised Governance Guidelines
In August, the ASX Corporate Governance Council also released a revised set of governance guidelines for listed companies--the first overhaul of the principles since they were introduced in 2003.

The new principles, which were streamlined from 10 to eight, continue the “comply or explain” approach to governance reporting adopted by the ASX. The new principles officially go into effect in January 2008, but companies may choose this season to comply, or explain to regulators why they do not.

The council, which comprises ASX officials and 21 groups including the ACSI, the Law Council of Australia, and the Australian Institute of Company Directors, removed most references to “best practice” in the second edition of the principles in order to make them seem less “prescriptive.” This was one of many changes that persuaded the directors’ organization to sign on to the new principles after objecting to the first edition.

Many of those governance tenets considered “best practices” in the U.S. market are already mandated by law in Australia, such as a majority vote standard for director elections, and non-binding votes on remuneration.

Australian shareholders typically engage with companies largely through dialogue with the board rather than shareholder resolutions. To file a shareholder proposal, Australian investors must hold more than a 5 percent stake in a company--or assemble a group of 100 individual shareholders.

Shareholders have begun to express more dissent at so-called “listed infrastructure companies,” which are mainly semi-public toll-road or utility companies, typically with a large insider ownership stake. These companies tend to be “stapled” entities, comprising one or two investment management trusts and the business itself. When a business is stapled, securities in each unit cannot be traded separately.

These stapled companies often have significant board overlap, and often super-powered voting shares that allow them to largely dictate the oversight of the company. For instance, Macquarie Infrastructure Group, a Bermuda-incorporated company, is stapled to two trusts, but it is the only entity required to hold an annual meeting. Two of its managing companies, Macquarie Investment Management (U.K.), and Macquarie Infrastructure Investment Management collectively hold “special shares” allowing them to appoint 75 percent of the board without shareholder input, according to company filings.

A similar infrastructure company, Babcock & Brown Wind Partners, has an exclusive financial advisory contract with its investment manager, and the managing fund has an automatic 25-year contract that can only be broken under extraordinary circumstances like insolvency or a breach in the management agreement.

Last year, several stapled firm subsidiaries, including Babcock & Brown Wind Partners, Macquarie Communications Infrastructure Group, Macquarie Media Group, and Babcock & Brown Infrastructure had 10 percent opposition to their pay reports--a number that would have been larger if not for the insider stakes.

In 2006, the independent shareholders of telecom utility Telstra voted 51 percent of their shares against a remuneration package for company executives, but were overridden by a government stake. Over 90 percent of independent shares were voted against the government’s board nominee, Geoffrey Cousins, the Australian Broadcasting Company reported.

Australian newspaper The Age reported in August that fund managers this year are considering voting against Telstra’s remuneration package at the company's Nov. 7 meeting in Sydney. They claim performance targets are too low for CEO Solomon “Sol” Trujillo and other executives.

Meetings to Watch
A few Australian companies will hold their first annual meetings this year after failed buyouts.

A $9 billion (A$11 billion) bid for airline company Qantas by a group of private equity firms calling themselves Airline Partners Australia failed to gain the support of over 50 percent of shareholders at a special meeting in May. The takeover bid was undermined by the airline’s own success, because what was once a generous offer began to depreciate as Qantas shares gained value, the International Herald Tribune reported.

Qantas chairwoman Margaret Jackson has said that she will not stand for re-election at this year’s annual meeting. As of Oct. 5, the company had not released a meeting notice.

One of Australia’s largest retailers, Coles Group, rejected a private equity bid in 2006, but the firm plans to put to a vote a $16.9 billion (A$19 billion) takeover by conglomerate Wesfarmers at its Nov. 7 annual meeting.

A few environmental and social shareholder resolutions may go to a vote this year. Logging company Gunns has been under pressure from socially responsible investors and Australian lawmakers since 2005 to assess the impact of its wood pulp plant and logging in the island state of Tasmania.

Meanwhile, the ASCI and other shareholder groups have pushed for a greater emphasis on environmental reporting.

“For institutional investors, considering [environmental and social] risks is not confined to ‘ethical funds’ or ‘SRI’ investment options, it is about ‘mainstreaming’ the consideration of [these] risks across their entire investment universe,” council President Michael O’Sullivan wrote.

However, the final draft of the revised ASX governance guidelines contained no new language about environmental and social reporting, to the disappointment of many pension fund and advocates of socially responsible investing.

This article ran in the October 5 edition of Risk and Governance Weekly. Martin Lawrence, RiskMetrics Group’s lead Australia analyst, contributed to this article.