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Chapter 12 - Director’s Power to Call a Meeting
Whether a director of a listed company should have the power to call a
meeting of members
12.1
Section 249CA of the Corporations Law provides
that a director of a listed company may call a meeting of members despite
anything in the company’s constitution. The right of a director to call a
meeting of the company’s members applies to companies incorporated in Australia
and included in an official list of the Australian Stock Exchange (ASX).
12.2
The submissions to the PJSC on this power were
not uniform. The views of individual shareholders, companies and professional
bodies were equally divergent.
Arguments in favour of a director having the power to call a meeting
This power existed in the past
12.3
The PJSC was advised that directors had been
empowered in this way in the past and it was acceptable, particularly in
relation to listed companies, that a single director should be able to create a
forum for the consideration of certain matters.[1]
It was pointed out that a director who exercised the power would be subject to
the ordinary duties of directors. A director could not properly take the step
of calling a meeting unless it was in the interests of the company that such
action be taken:
There is not, within companies, any established rule of “board
solidarity”, even though in most cases decisions are taken by consensus. The
duties the law casts upon directors are cast upon them severally and
individually. The ability for a particular director, of his or her own motion,
to cause a matter within members’ competence to be placed before them for
decision might on occasion operate as an aid to prudent corporate governance
and serve the interests with which the preceding section concerning
whistleblowing is concerned.[2]
A tool for raising issues
12.4
Several submissions supported the new power as a
tool for an independent but minority director to raise relevant issues for
review or decision in a shareholders’ meeting.[3]
It would also provide a director with leverage in dealing with the majority of
directors who are not independent.[4]
It was argued that in some circumstances a director might need to bring matters
to the attention of shareholders for a vote:
A director is responsible and liable to the members, and it may
be that in some circumstances he cannot fulfil those responsibilities unless he
brings certain matters to the attention of members and allows them to vote on
them.[5]
Qualified support
12.5
The Australian Law Reform Commission (ALRC)
noted that as the power to call meetings can be both beneficial and dangerous,
the power should be qualified. The ALRC envisaged a situation where certain
issues need to be brought to the attention of a general meeting but the board
opposes the calling of such a meeting. In those circumstances, the ability of a
single director to call a meeting will be beneficial. On the other hand,
“costly and unnecessary general meetings might be called by a distrustful
director as an adjunct of boardroom politics that ought properly to be resolved
in that forum”.[6]
12.6
The ALRC suggested that the power should be
qualified to minimise the risk of its unwarranted use. The director should be
required to give the board 28 days notice before calling a meeting and to
specify in the notice the reason why such a meeting is considered necessary.[7]
12.7
Similarly, the Henry Walker Group Ltd supported
the new power subject to controls on costs and self-interested directors.[8]
Arguments against a director having the power to call a meeting
The power is unfettered
12.8
One important ground of objection to new section
249CA is that it gives a single director an unfettered power to call a meeting.
The provision makes no statement about the bona fides of the director and takes
no account of the costs that may be borne by the company. It does not rule out
the possibility of a succession of meetings being called by a dissident
director.[9]
The PJSC was told that a dissident director could impose considerable expense
on the company by calling a succession of meetings.[10] In addition, the calling of
meetings to expose division on the board may have a negative effect on the
company’s market standing and share price.[11]
The majority of submissions that opposed the power urged the introduction of
safeguards to avoid unnecessary meetings and expense.[12]
Current arrangements are adequate
12.9
A number of submissions were of the view that
the current powers for requisitioning a meeting are adequate.[13] Belmont Holdings Ltd opposed
the new provision on the grounds that there is ample scope now for aggrieved
directors to convene meetings without the unnecessary expense of a meeting.[14]
12.10
Mr JA Sutton described a company’s constitution
as “a contract between the members and their company in which the members
delegate management of their interests to the board of directors”. The board is
legally required to manage the affairs of the company properly and to report to
the members in general meeting. If members disagree, there exist “ample powers
to seek correction”.[15]
12.11
The Australian Institute of Company Directors
(AICD) queried the effect of the power in practice, maintaining that a single
dissident director would be outnumbered and that, in all likelihood, little
would be achieved by calling a general meeting. The AICD noted that the main
sanction of a dissatisfied director is to resign with an accompanying public
statement.[16]
12.12
The Association of Mining and Exploration
Companies Inc (AMEC) was of the view that a director’s power to call a meeting
should be subject to the threshold requirements in section 249D(1). According
to AMEC, a requirement of this nature would prevent unnecessary meetings.[17] A similar view was expressed
by Mr R Furlonger who stated that a director was in a similar position to a
shareholder and should be subject to same requirements for convening a meeting
of members.[18]
Power to call a meeting is ineffective
12.13
The AICD submitted that the absence in the
director’s power of equivalent provisions to sections such as 249D(2) and (5),
and 249E(2) and (3), which provide procedures for calling a meeting, raised
doubts as to how a director could call a meeting.[19]
Other alternatives
12.14
It was suggested to the PJSC that other
alternatives might be more appropriate. The Accounting Association of Australia
and New Zealand (AAANZ) called for a compromise. The AAANZ recognised that
external directors have special responsibilities because they are not full time
employees of the company. They represent all shareholders especially the less
informed. A compromise was needed to ensure that unnecessary meetings are not
called yet guarantee the ability of external directors to fulfil their duties:
While there should be some protection to avoid the company’s
assets being wasted by the calling of unnecessary meetings of shareholders,
nonetheless, a compromise might be needed to guarantee the ability of outside
directors to properly fulfil their duties with respect to less well-informed
shareholders.[20]
12.15
Another alternative was that the power should be
exercised by not less than a specified percentage of all directors. This, it
was submitted, would avoid a situation where a disgruntled director could put
the company to expense and inconvenience.[21]
Bristile Ltd suggested that a compromise would be for the power to be exercised
by two directors or one-third of directors.[22]
KPMG proposed that a director should be required to obtain the support of a
majority of the board.[23]
12.16
The Accounting Bodies proposed that provisions
similar to sections 249O and 249P should apply in respect of the distribution
of a notice meeting called by a director:
A company should only bear the cost of the distribution of the
notice of a resolution if it is received on time, not more than 1,000 words
long and not defamatory.[24]
Power to call a meeting should be
optional
12.17
The Australian Stock Exchange (ASX) and the Law
Institute of Victoria objected to the right of a director to call a meeting
being mandated in the Corporations Law, preferring that it be optional under
the company’s constitution.[25]
In support of this position, the ASX noted that the calling of meetings is a
“significant and potentially costly action” and that companies should determine
whether individual directors should be able to call meetings.
12.18
The Law Institute of Victoria submitted that the
Law already provides safeguards for minority shareholders:
Shareholders should have the ability to choose whether an
individual director should have the right to call a meeting. A director who has
particular concerns about corporate governance or other matters concerning the
company is free to raise those concerns with the ASIC, if the other directors
are unwilling to call a meeting of shareholders to consider the matter. In
addition, there are various other safeguards for minority shareholders in the
existing law.[26]
12.19
Ernst & Young opposed a director’s power to
call a meeting on the basis that the provision overrides anything in a listed
company’s constitution. It was proposed that members should be able to amend
their constitution to remove this power. [27]
Similarly Coles Myer Ltd stated that members of a listed company should decide
whether to empower an individual director to call a meeting of members.[28]
Conclusions
12.20
As several witnesses told the PJSC, a director’s
power to call a meeting can be exercised despite anything in the company’s
constitution. Strong arguments were made for retaining this power on the grounds
that its public benefit outweighed the infrequent occasions when a director may
abuse the power. It was also stated that although in reality the power “is
never going to be used”, it should remain in the Corporations Law as a tool or
leverage for independent, minority directors in dealing with the board.
Otherwise the majority will be in a position to implement a decision
irrespective of the views of the independent directors. In response it was
argued that current avenues for raising issues or concerns already exist that
do not put shareholders to the additional expense of a meeting. The use of this
power as leverage in board discussions was, as one witness told the PJSC
“extortion because somebody could say, ‘I will call a meeting and it will cost
the company $1 million’ and to avoid that he would get a golden handshake and
retire”.[29]
Further, the cost and time involved in convening a meeting will distract the
company from its business activities.
12.21
The PJSC believes that directors must act within
the powers entrusted to them by shareholders and not outside these powers. By
overriding a company’s constitution, the Law permits a director do so without
regard to bona fides and without any sanction. The PJSC was not persuaded that
the Corporations Law should override the wishes of shareholders who will have
to bear the costs of a general meeting called by a director. In order for the
meeting to be properly convened adequate notice would need to be given to all
members.[30]
It was estimated that the cost of the notice of meeting was $2.00 per
shareholder. The PJSC believes that if a director’s view does not prevail at
the board it is unlikely that it will prevail at a general meeting called by
the director. In the view of the PJSC the use of the Corporations Law as
leverage in board discussions is undesirable and may have the effect of
dissuading directors from exercising their commercial judgment in decisions
affecting the company. A director’s power to call a meeting, therefore, should
be optional under a listed company’s constitution as recommended by the Law
Institute of Victoria.
Recommendation
12.22
The PJSC recommends that section 249CA of the
Corporations Law be repealed.
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