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It’s AGM season….are you prepared?

This Ernst & Young article outlines how that firm sees the issues for the 2006 AGM season.

The Annual General Meeting (AGM) is the one day of the year that shareholders have the legal right, as owners of a listed company, to quiz the board. In doing so, they pass judgment on how the board has fulfilled its role.

The board, in guiding and monitoring the company, is responsible for proper accountability, probity and transparency in the conduct of the company’s business.

The AGM needn’t be seen as stressful - you can turn it into a positive experience for both you and your shareholders.  By being prepared – familiarising yourself with common issues, rehearsing anticipated questions and responses, and communicating with your stakeholders – you will minimize risks, and pave the way for a successful AGM and trusted shareholder/board relationship.

Issues Ernst & Young anticipate for the 2006 AGM season include:

Director and executive remuneration

The Remuneration Report is subject to a non-binding shareholder vote. The Report’s content and vote results attracted much attention from shareholders and the media in 2005.

Given the recent focus on remuneration, the Remuneration Committee Chair must have detailed knowledge of the disclosures made in their company’s annual report, be able to respond to concerns, and most importantly be able to position the commercial rationale for the company’s remuneration approach. Ideally, the Remuneration Committee should be provided with a detailed question and answer document on contentious issues well in advance of the AGM.

The main areas of concern that led to ‘no’ votes at AGMs in 2005 were:

  • Equity plans with no performance hurdles for vesting, or low performance hurdles;
  • Equity plans which allowed performance to be re-measured at a later date, particularly where companies make annual grants of equity;
  • Equity plans with performance /vesting periods under three years;
  • The existence of NED retirement schemes;
  • ‘Excessive’ increases in NED fee pools;
  • ‘Excessive’ termination provisions for executives;
  • ‘Excessive’ remuneration, in the form of equity grants or cash.

International Financial Reporting Standards

Financial statements compliant with Australian equivalents to International Financial Reporting Standards (AIFRS) are required for the 2006 financial year. Although the AIFRS ramification is unique to each corporation, the board should understand the consequences of the transition and be able to answer questions, particularly on AIFRS adjustments which may prompt queries on the treatments applied previously under AGAAP.  The board should understand the future impact of AIFRS compliance, namely: valuation; systems and finance function; and earnings.

Governance issues

From a governance regulatory perspective, the 2006 financial year will be the first in a while without new legislation or regulation to consider. The disclosures enacted by CLERP 9 and benchmarking against the ASX Corporate Governance Council (CGC) Principles of Good Corporate Governance and Best Practice Recommendations are now firmly in place.

2006 Ernst & Young.  All rights reserved. This material is reproduced with the permission of Ernst & Young. This material should not be reproduced, stored in a retrieval system or transmitted in any form whether in whole or in part without the prior written permission of Ernst & Young.

The article entitled "It's AGM Season…Are You Prepared?" (the "Article") has been prepared by Ernst & Young and licensed to ASX. The information contained in the Article is intended to provide a general summary for educational purposes only and does not constitute financial, investment, legal or other professional advice. You should consider obtaining independent advice before making any decisions. Any views, opinions or recommendations in the Article is solely those of Ernst & Young and do not in any way reflect the views, opinions or recommendations of ASX. 
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