New rights will mean shareholders can make auditors spill the beans at company AGMs
The new AGM season is on its way but shareholders will have to wait another 12 months to reap the benefits. Changes to the law mean shareholders will have new rights when it comes to annual general meetings. Under CLERP 9, the auditor of a listed company, or a representative, will be required to attend the companys AGM and can be questioned by all shareholders not just those in attendance at the AGM.
Shareholders with questions about the audits conduct, the audit report, accounting policies and the independence of the auditor will be assured the auditor will be present to answer questions in the future.
'Shareholders can feel some comfort that auditors will now be able to raise their concerns regarding company operations or management with the board,' says Fiona Balzer, a spokesperson for the Australian Shareholders Association (ASA).
'CLERP 9 will enable more informed voting by retail shareholders, thanks to the increased disclosure. Well have new responsibilities and more influence with voting on the remuneration report,' she says.
But the report preparers believe the new measures might not be all theyre cracked up to be.
John Stanhope FCPA, the national president of the Group of 100 CFOs of Australias top 100 companies says he predicts it wont be easy for shareholders to understand the new disclosures.
'This is one of the outstanding issues with CLERP 9, as far as were concerned. Accountability and transparency are important, but I dont think the new system is necessarily meeting the test of being more useful for the reader,' he says.
This is an opinion echoed by Julie Burke, national policy manager of the Securities Institute of Australia. She believes changes to the reporting system could cause confusion for some shareholders.
'If shareholders arent up-to-date with CLERP 9 and IFRS, they could be in for a shock,' she says.
The CLERP 9 changes will also allow shareholders to have their say on the contentious issue of executive pay. News stories in recent times have left shareholders sour when poorly performing executives have left companies with handsome payouts. Shareholders will now be able to have a non-binding vote on executive remuneration.
Annual reports will now have to detail the annual remuneration of each of the five highest paid company executives, or the five highest paid group executives in the case of consolidated groups. While the vote is non-binding, directors will have to think carefully about how executives are paid, as companies that ignore shareholder suggestions on executive pay run the risk of adverse publicity down the track.
John Stanhope says he has never experienced shareholders being reluctant to express an opinion on executive pay in the past.
'The Group of 100 has always been of the opinion that this is an unnecessary part of CLERP 9. Members have never felt inhibited asking questions about executive pay. Whats the point of a non-binding vote anyway?' he says.
But not everyone agrees with Stanhope. Australias most famous shareholder activist Stephen Mayne of crikey.com.au fame told a parliamentary committee hearing in April he believed the non-binding vote on salaries was a step in the right direction.
'Obviously, the non-binding vote on executive pay is a good step that is working well in the UK. Brambles, BHP and Rio Tinto have had no problems with greater disclosure of their remuneration. So I would say that it is an important step forward, but there are a lot of issues which I would love to see incorporated into it.'
Fiona Balzer agrees, saying the ASA has looked at the success of this similar initiative in the UK and is optimistic of its use in Australia.
The next thing for the ASA is to support sensible remuneration practices. 'I think that boards will find a simple and transparent policy applied consistently will make for an easier AGM,' she says.
Ask the auditor
Now that you can have a greater say and ask more questions at AGMs, what sorts of things should you look out for? The Australian Shareholders Association says shareholders should be asking the auditor to explain:
the process used for verifying the inventory and receivables in the report
the emphasis of matters or qualifications in more detail
how intangibles have been valued
why alternative accounting treatments have been selected or the impact of any change in treatment
