|
Important notice: You may use this material for your own personal reference only. The material may not be used, copied or redistributed in any form or by any means without a LAWLEX enterprise wide subscription. Corporate Law Bulletin Bulletin No. 86, October 2004 Editor: Professor Ian Ramsay, Director, Centre for Corporate Law and Securities Regulation Published by LAWLEX on behalf of Centre for Corporate Law and Securities Regulation, Faculty of Law, the University of Melbourne with the support of the Australian Securities and Investments Commission, the Australian Stock Exchange and the leading law firms: Blake Dawson Waldron, Clayton Utz, Corrs Chambers Westgarth, Freehills, Mallesons Stephen Jaques, Phillips Fox. Use the arrows to navigate easily across the bulletin | |
|
Detailed Contents | |
|
1. Recent Corporate Law and Corporate Governance Developments
4. Recent Takeovers Panel Developments
5. Recent Corporate Law Decisions
| |
|
1.1 Seminar (Sydney and Melbourne) – Shareholder meetings – key
issues and developments
This seminar brings together well known speakers to discuss important developments relating to meetings. SPEAKERS Dates or phone 03-83445281 (Centre for Corporate Law and Securities Regulation)
1.2 The Melbourne Law School 2005 graduate law program Commercial and corporate law
provides the framework for business transactions. Highlights of the 2005 program include: 130 subjects, 25 of which are completely new, 33 interlinked coursework degrees and diplomas, expert tuition blending theory and practice, an intensive teaching format (offering convenience for interstate and overseas based students), 37 visiting international Faculty, a stimulating graduate student cohort and maximum use of information technology. Some of the 130 subjects offered in 2005 are: Accounting for
Commercial Lawyers For more information: http://graduate.law.unimelb.edu.au/
1.3 Enhanced corporate governance guidelines issued by IFSA On 21 October 2004 the Investment and Financial Services Association (IFSA), which represents Australia’s largest institutional investors, published the new edition of the IFSA Blue Book. It contains a number of significant changes as a result of amendments to the Corporations Act and the release by the ASX Corporate Governance Council of its 'Principles of Good Corporate Governance and Best Practice Recommendations'. The significant new additions cover:
Under the IFSA best practice regime, fund managers will be voting on all resolutions, whereas previously, this requirement was on material resolutions only. Proxy voting will now be required to be disclosed on all resolutions and a new IFSA Standard requires member companies to publish an annual proxy voting summary on their website. The Blue Book, formally known as IFSA Guidance Note No.2: ‘Corporate Governance: A guide for Investment Managers and Corporations’, is published by IFSA to assist its members to pursue an active role in monitoring the corporate governance responsibilities of the companies in which they invest. IFSA’s members manage approximately $725 billion on behalf of superannuation members and retail clients. IFSA members’ investment in the domestic market accounts for about 25% of the capitalisation of the Australian Stock Exchange (ASX). Fund managers are significant shareholders in Australian listed companies on behalf of over 9 million Australians. As major shareholders, IFSA members are in a position to promote improved company performance that provides positive benefits to all shareholders and the economy as a whole. The 5th edition of the Guidance Note is issued by IFSA to assist its members to provide leadership in promoting matters central to the interests of all shareholders. It also takes into account changes to the law and practice since the 4th edition Reprint issued in March 2003. The Blue Book is available online at the IFSA website.
1.4 2004 global competitiveness report On 13 October 2004 the World Economic Forum published the Global Competitiveness Report 2004. The top 16 countries in terms of competitive economies according to the report are: (1) Finland; (2) USA; (3) Sweden; (4) Taiwan; (5) Denmark; (6) Norway; (7) Singapore; (8) Switzerland; (9) Japan; (10) Iceland; (11) United Kingdom; (12) Netherlands; (13) Germany; (14) Australia; (15) Canada; (16) UAE. The rankings are drawn from the results of the Executive Opinion Survey, a survey conducted by the World Economic Forum, which this year polled over 8,700 business leaders in 104 economies worldwide. The survey questionnaire is designed to capture a broad range of factors affecting an economy’s business environment that are key determinants of sustained economic growth. Particular attention is placed on elements of the macroeconomic environment, the quality of public institutions which underpin the development process, and the level of technological readiness and innovation. The Global Competitiveness Report reviews 104 economies. Further information is available at http://www.weforum.org/
1.5 UK Corporate boards and senior executives see shortcomings in monitoring and reporting According to a new survey conducted on behalf of Deloitte Touche Tohmatsu by the Economist Intelligence Unit (EIU) and published on 12 October 2004 only about one third (34 percent) of board members and top executives polled say their companies are proficient at monitoring critical non-financial indicators of corporate performance. The majority of board directors and senior executives surveyed for the study called "In the Dark: what boards and executives don’t know about the health of their businesses" said that factors such as customer satisfaction, innovation, supplier relations and employee commitment are critical to corporate success. But they admitted that there were difficulties in monitoring these drivers of organizational performance. By contrast, the study indicates that 86 percent of executives believe their companies are excellent or good at measuring and tracking the performance indicators necessary for financial reporting purposes. The cross-industry survey of 249 executives worldwide was conducted in March and April 2004. Most of the firms were large, with 71 percent having annual revenue of more than US$500 million. Survey data was collected from an online questionnaire and telephone interviews. The survey is part of a larger Deloitte study that is currently underway focusing on best-practices of companies around the world that are superior at providing their boards and senior executives with valuable information on firm performance, both financial and non-financial. The survey found that most board directors and executives need more non-financial information on how well their companies are satisfying customers, delivering quality products and services, operating with efficient processes, and developing new products and services. Almost 75 percent said their companies were under increasing pressure to monitor non-financial performance indicators. And 92 percent said their board directors were responsible for monitoring both the financial and non-financial measures of their companies' performance. The survey revealed that the minority or only a slight majority of the companies said their board directors are given excellent or good information in key areas including:
Asked why board members and senior managers lacked information on many of the vital signs of their businesses, respondents identified two barriers more than any others: the absence of developed tools for analyzing non-financial measures, and scepticism that such measures directly impact the bottom line. The study is available at: http://www.deloitte.com
11.6 UK FSA issues final proposals for modernising the listing regime On 11 October 2004 the Financial Services Authority (FSA) published its consultation paper on the implementation of the EU Prospectus Directive and on modernising the listing regime. The paper includes a feedback statement on CP203 – Review of the Listing Regime, the FSA's initial consultation on reforming the regime. The aim of the listing review is to simplify and modernise the existing UK regime to ensure that it provides an appropriate level of regulation, while retaining and strengthening the many features which have contributed to the integrity and competitiveness of UK markets. The FSA is consulting on a restructured set of rules and guidance to:
(a) Feedback and proposals The feedback received in response to CP203 supported the FSA's general approach to listing and regulation of the primary securities markets. In light of industry comments regarding the 'gold-plating' of directives and to reflect concerns regarding competitiveness, the FSA proposes to remove all super-equivalent regulation which currently applies to the debt and secondary listed markets. The market has not requested super-equivalence in these areas and the directives provide an acceptable level of regulation for these securities. However a significant majority of respondents supported 'gold-plating' the eligibility requirements for primary listed issuers of shares, imposing higher standards than those required by the European Directives. The FSA proposes to retain certain of these provisions which include the eligibility criteria requiring a three year track record and a 'clean' working capital statement. The key proposals include:
(b) Prospectus directive The key changes proposed under the Prospectus Directive, for which HM Treasury will be publishing the implementation legislation shortly, are:
(c) Next steps The FSA intends to publish the final version of the Listing Rules in Spring 2005 for implementation on 1 July 2005, when the Prospectus Directive will also come into force. The consultation papers are available at: http://www.fsa.gov.uk/pubs/press/2004/081.html
1.7 UK study of shareholder voting Early analysis by Manifest (a UK proxy advisory firm) of the votes cast at all this year’s shareholder meetings in the FTSE All Share has shown that five resolutions to approve the remuneration report have been defeated as compared to only one the year before. A further three small companies had their report defeated according to Manifest’s study published on 7 October 2004. This is despite aggregate levels of dissent in respect of resolutions to approve the remuneration report falling from 11.89% in the last voting season to 10.27% this year. Dissent is defined as the total number of votes cast either against or as positive abstentions. Across all resolutions, average levels of dissent have slightly decreased from 3.36% to 2.84%. The analysis is based on voting results from 722 companies, representing 86.16% of all events held by FTSE All-Share companies between 1 August 2003 and 31 July 2004. The level of dissent recorded at meetings of FTSE 100 companies has significantly decreased to 2.92% (2003: 4.51%) with the FTSE 250 at 2.60%. SmallCap companies have however, recorded a slight increase in the level of dissent to 3.04% from 2.71% last year. Some 1.23% of the total votes cast were in the form of abstentions, down from 1.65% over the last year. Votes against remained largely unchanged at 1.61% (2003: 1.71%), showing that shareholders were more likely to use against votes rather than positive abstentions to demonstrate their dissatisfaction. Excluding shareholder resolutions, five types of resolution saw average dissent levels of more than 10% during 2003/04, including approval of charitable donations at 33.45% (only one relevant resolution included in the data), waiver under rule 9 (29.64%), bundled resolutions (11.77%), articles of association – investment trust companies (10.83%) and approval of the remuneration report (10.27%) as previously mentioned. Manifest recorded a substantial increase in the numbers of companies disclosing proxy poll data to shareholders who did not attend the meeting. For the first time, Manifest has recorded a 100% response rate from FTSE 100 companies (2003: 96.7%), with the FTSE All Share being 86.9% (2003: 77.6%). The biggest increase was recorded in the SmallCap Index, where the response rate has increased to 83% from only 69.6% one year ago. However, the response rate from Fledgling companies is still lower at just 60%. Manifest considers that the increased openness from companies is partly a reflection of the emphasis on shareholder communication under the revised Combined Code. In respect of companies currently in the FTSE 100, early analysis of the meeting turnout has shown a marginal decrease this year. Proxy votes in respect of 55.4% of the votable capital were cast at meetings in 2003/04, while the same companies last year recorded a turnout of 56.6%. However, average meeting turnout both in the FTSE 250 and the SmallCap has increased and now stands at 58.4% and 57.1% respectively (2003: 56.4% and 47.3%), still however falling short from the government’s target of 60%. However, when turnout at the meetings for investment trusts are excluded, the government’s target is comfortably exceeded for these indices. For further information about Manifest is available on its website at: http://www.manifest.co.uk/
(a) Overview IPO investors enjoyed high returns in the September 2004 quarter, according to Deloitte Corporate Finance quarterly IPO report published on 6 October 2004. Investors more than doubled their money in six of the 46 IPOs that listed in the past three months, while almost 80% of all IPOs equalled or bettered their issue price at the end of the quarter. The average return of all IPOs in the September quarter was 41%, almost four times the average of 11% for all IPOs in the year to 30 June 2004. The energy sector was a highlight with an unusually large number of IPOs - seven floats raising a total of $48 million - and an exceptional average return of 115%.The energy sector produced the two best performing IPOs of the quarter Elixir Petroleum (up 320%) and Tomahawk Energy (up 260%). All IPOs in this sector generated double digit returns for investors.The resources and energy sectors dominated activity in terms of number of floats, producing 17 of the 46 IPOs in the September quarter, but accounting for only $138 million or 11% of all funds raised. IPO activity continued to increase in the September 2004 quarter, with the number of IPOs rising from 31 in March 2004 to 37 in June 2004 and 46 in September 2004. However, the amount of equity raised decreased from $3.62 billion in the June quarter, which included last years biggest IPO - Pacific Brands, to $1.22 billion in the September quarter. (b) Other features of the IPO market in September 2004 quarter
The full report is available at: http://www.deloitte.com/dtt/press_release/0,1014,sid%253D5527%2526cid%253D61705,00.html
1.9 UK Auditing Practices Board finalises ethical standards for auditors On 5 October 2004 the UK Auditing Practices Board (APB) announced that it has finalised five Ethical Standards (ESs), having undertaken an extensive period of consultation. They will be effective for audits of financial statements for periods commencing on or after 15 December 2004. The Standards establish basic principles and essential procedures with which auditors are required to comply in any audit of financial statements. These Standards will replace the existing guidance for auditors, issued by the auditors’ professional bodies. The five Standards cover:
The final versions of the Ethical Standards 1 to 5 are available to download from the Publications (Ethical Standards) section of the APB web site at: http://www.frc.org.uk/apb/
1.10 Census of Australian women directors and executives While there has been a gradual increase in the number of women stepping up to senior positions, the third EOWA Census of Women in Leadership shows that Australia’s corporate boardrooms are still dragging their feet. Released on 5 October 2004 by the Equal Opportunity for Women in the Workplace Agency (EOWA), the 2004 Census shows the number of women executive managers in Australia’s companies listed on the ASX has increased by 1.8% to 10.2%. The number of women board directors has increased by only 0.2% to 8.6%. The number of women in line positions, the experience widely considered necessary for rising to the most senior positions, has increased by 1.8%. Significantly, the number of companies in the ASX200 with no female executive managers has decreased by more than 10% since the Census was first conducted in 2002, however this is still a high 42%. The number of companies with two or more women executive managers has increased to nearly 25%, a rise of 6.3% since 2002. On all measures however, Australia lags behind the USA and Canada. 86% of US Fortune 500 companies and 62.4% of Canadian Financial Post 500 have at least one woman in an executive management position. Despite women’s workforce participation climbing to the highest ever rate of 45% and 56% of university graduates being female, women are still scarce in the top most corporate positions. Of the ASX200 companies, women hold only two Chairs of Boards and four CEO positions, even though a recent Catalyst report found that women are just as likely as men to seek the top jobs. Industries with the highest representation of women on boards and in executive management are telecommunications, software & services, diversified financials, banks, insurance and retailing. Industries with a low representation of women on boards are automobiles and components, technology and hardware equipment, commercial services & supplies, real estate and energy. Industries with a low representation in executive management are consumer durables and apparel, hotels restaurants and leisure, food beverage & tobacco, capital goods and automobiles and components. More information about the study is available on the EOWA website. (a) Women executive managers For the top 200 companies listed on the Australian Stock Exchange at 30 June 2004 and featured in the Census.
(i) Best performing industries
(ii) Worst performing industries
(iii) An international comparison of the % of women executive managers Latest Census figures:
(b) Women board directors For the top 200 companies listed on the Australian Stock Exchange at 30 June 2004 and featured in the Census:
(i) Best performing industries
(ii) Worst performing industries
(iii) An international comparison of the % of women board directors Latest Census figures:
1.11 IFAC invites comments on audit independence guidance in revised code of ethics On 4 October 2004 the Ethics Committee of the International Federation of Accountants (IFAC) released an exposure draft “Revised Code of Ethics for Professional Accountants”, clarifying independence requirements for professional accountants in public practice who perform assurance engagements. The changes are designed to conform the Code to the “International Framework for Assurance Engagements”, issued by the International Auditing and Assurance Standards Board; and definitions contained in International Standard on Quality Control (ISQC) 1, “Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance Related Services Engagements”. In addition, the ED proposes a requirement to rotate the individual responsible for the engagement quality review in an audit of a listed entity. The Ethics Committee believes that in an audit of a listed entity the person responsible for the engagement quality review be subject to the same rotation requirements as the engagement partner. In July 2003, the Ethics Committee released an ED in which it proposed fundamental principles of professional ethics for professional accountants and a conceptual framework for applying those principles. The Ethics Committee has now finalized the Code based on comments received on this earlier ED. The Ethics Committee is re- issuing the entire Code in this exposure draft to enable readers to understand the independence section in the context of the entire Code. An explanatory memorandum is being issued with the ED which provides background on recent changes to the Code and the areas on which comments are now being sought. This new ED of the revision to the “Code of Ethics for Professional Accountants” and the explanatory memorandum may be downloaded from the IFAC website. Comments are requested by November 30, 2004. They may be submitted to: Edcomments@ifac.org or faxed (+1-212-286-9570) or mailed to the attention of Jan Munro at IFAC, 545 Fifth Avenue, 14th Floor, New York, NY 10017. All comments will be considered a matter of public record. IFAC is the worldwide organization for the accountancy profession. Its current membership consists of 157 professional accountancy bodies in 118 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. The organization sets ethics, auditing and assurance, education, and public sector accounting standards.
1.12 Survey: complying with corporate governance reforms The task of complying with the new financial disclosure and corporate governance standards isn't as difficult as expected, according to a Hill & Knowlton survey of US senior executives published on 1 October 2004. According to Hill & Knowlton's annual Corporate Reputation Watch study, corporate leaders seem to have overcome their initial misgivings about the potential administrative and financial burdens of complying with the requirements of the Sarbanes-Oxley era. Only 8 percent of senior executives surveyed believe that the task of complying with the new financial disclosure and corporate governance standards poses a real challenge to running a competitive business, while 45 percent say that the compliance burden is "heavy but manageable." Nearly half of those polled (48 percent) say that the burden is "reasonable." The survey of 175 senior executives, which was conducted by the Economist Intelligence Unit, also found that almost two-thirds of respondents believe that it is no more difficult to recruit board members today than it was before the new governance reforms were adopted. However, executives do see some downsides to burgeoning governance and compliance requirements. Respondents cite increased administrative complexity and the diversion of management time as the two top drawbacks, cited by 24 percent, while 22 percent cite increased investment in sophisticated compliance and reporting tools/systems, and 21 percent say that it has brought about an increased aversion to risk-taking. Among the initiatives they say that their companies have undertaken in the past two years specifically to strengthen corporate governance, 59 percent reviewed and enhanced compliance and disclosure standards and procedures; 40 percent put processes in place to ensure greater independence and accountability of their board; 35 percent introduced ethics-related employees training; and 28 percent reviewed and changed their auditor relationship. In addition, 25 percent restructured executive compensation, 24 percent separated the role of chief executive and chairman, and 10 percent created a chief ethics officer or similar role. The report is available on the Hill & Knowlton website at: http://www.hillandknowlton.com/crw/
1.13 Disclosure of voting by US mutual funds In October 2004, the AFL-CIO released a study of proxy voting by US mutual funds. On 31 August 2004, for the first time, US mutual fund companies reported how they cast their proxy votes at the public companies in which they invest. The disclosure is the result of US Securities and Exchange Commission rules adopted in January 2003. According to the Executive Summary, the report evaluates how the 10 largest mutual fund groups voted in relation to CEO pay at 12 S&P 500 companies in 2004. In addition, although the SEC rule does not require mutual funds to disclose business relationships with portfolio companies, the research indicates that, of the 120 proxy voting decisions in the survey, 25 involved a mutual fund advisor that has a business relationship with the portfolio company. The study is available at http://www.aflcio.org/corporateamerica/capital/toolbox.cfm
1.14 Shareholder communication discussion paper On 28 September 2004, the Business Council released a discussion paper outlining a number of new approaches Australia’s listed companies might adopt to strengthen or improve their communication and interaction with shareholders. The paper, “Fresh approaches to communication between companies and their shareholders”, was produced as a catalyst for debate for companies, shareholders and market commentators into the coming AGM season. Developed by the BCA’s Chairmen’s Panel, the Australian Institute of Company Directors (AICD) and Chartered Secretaries Australia (CSA), the Paper identifies ways companies and shareholders can strengthen or review the way they communicate and interact. The Australian Shareholders’ Association was also consulted in the development of the Paper. It is said in the paper that many of the current practices such as AGMs may need to be rethought or re-energised due to the increase in the number of shareholders, the heightened level of interest in and expectation of the performance of listed companies and the advent of new information and communication technologies. The paper was developed not only for companies but also to alert shareholders, as owners, of their own roles and responsibilities in being engaged in the process of information and communication with companies. The paper is particularly targeted at large listed companies, the top fifty of which account for 75 per cent of the Australian market by capitalisation. Ideas and alternatives canvassed in the paper include:
The BCA has written to the top fifty listed companies in Australia, encouraging them to consider the suggestions outlined in the paper. The discussion paper is available at: http://www.bca.com.au/upload/Fresh_Approaches_to_Communication_Between_Companies_and_their_Shareholders.pdf
1.15 UK FSA releases sector briefing on closed with-profits funds The UK Financial Services Authority (FSA) published on 28 September 2004 an insurance sector briefing on the regulation of closed with-profits funds, setting out some of the general considerations relating to closed funds and exploring some of the complexities surrounding them. The issues covered by the briefing paper include:
Further information is available from: http://www.fsa.gov.uk/pubs/press/2004/079.html1jjw CSA
1.16 New ICSA guidance notes on corporate governance The UK Institute of
Chartered Secretaries and Administrators (ICSA) has published two new guidance
notes, which aim to clarify areas of the revised combined code on corporate
governance.
1.17 Organisations worldwide must improve sustainability reporting
The publication, Towards Transparency: progress on global sustainability reporting 2004, looks at the status of sustainability reporting around the world and identifies a number of trends - with marked improvements in coverage, standards and credibility needed in the next few years. It is split into four regional chapters - Europe, The Americas, Africa and the Middle East and Asia and Australasia. The publication shows that North America and Western Europe are the most active reporting regions. In contrast, non-financial reporting is practically unknown in the Middle East and most of Latin America. In the Asia Pacific region there is little reporting outside Australasia and Japan - and across Africa only South Africa is showing significant reporting activity. The publication shows that:
In its European chapter, the publication shows that the region has led the way in non-financial reporting, accounting for just over half of all reports produced globally. In Europe, a fifth of reports are produced in Scandinavia, and over three quarters come from the rest of Western Europe. Central and Eastern Europe reporters account for only around 2% of reports. Almost two thirds of reports have an environmental focus, with a fifth representing fuller sustainability and corporate responsibility reports. Of the reports produced in Europe in 2003, just under half had external assurance. The publication shows that Africa and the Middle East are relatively new to sustainability reporting. South Africa dominates reporting in the region and accounts for over two thirds of all reports published between 1993 and 2003. The rest of Africa produces just under a quarter of all reports. Encouragingly, over 40% of reports are full sustainability or corporate responsibility reports. In its chapter on The Americas, the publication shows that reporting has reached a plateau in recent years, following steep growth between 1990 and 1995. The proportion of reports with external assurance has doubled since 1995, although the figure is low in comparison with the rest of the world. Between 2001 and 2003 almost two thirds of reports from the Americas were published in the US with a third published in Canada. Reports from South America account for only 6% of the total published reports. In the section on Asia and Australasia, the publication shows that three countries, Australia, Japan and New Zealand are responsible for growth in reporting, which doubled every year between 1996 and 2000. Over half the reports produced in the region were produced in East and South East Asia, Australasia accounted for 43% and South Asia just 1%. The report is available at: http://www.accaglobal.com/news/
| |
|
2.1 ASIC
issues licensing relief for wholesale foreign financial services providers
regulated by the US Commodity Futures Trading Commission
2.2 ASIC targets unlicensed financial services
businesses |
