A recent Federal Court ruling has supported the “NRMA Principle” that shareholders cannot instruct directors on how to run the company, but recent developments at AGL Energy make it clear that activists are still hunting for a way to make an impact.
The Federal Court recently ruled that the Commonwealth Bank was correct in rejecting an ordinary resolution submitted by a shareholder group for putting to its 2014 AGM, on the basis that shareholders cannot require an AGM to consider a resolution “expressing their opinion on matters as to how a power vested in the board ought to be exercised”.
The resolution, requisitioned by shareholders (more than the minimum 100) associated with the Australasian Centre for Corporate Responsibility (ACCR), expressed concern that the Bank’s annual report did not contain certain disclosures around emissions and fossil fuel risks associated with projects and companies the Bank had financed, and strategies to reduce those risks.
The basis for the Bank’s position was that the subject of the ordinary resolution was “within the purview of the Board and management of the bank”, not the shareholders. The Bank did, however, put to the AGM a special resolution requisitioned by the same group that sought to amend its constitution to require an annual report on greenhouse gas emissions financed by the Bank.
The Federal Court ruling was entirely to be expected, based on what is known as “the NRMA principle”1. But the activists in NRMA had another argument – that the requisitioned general meeting should still be held to consider a resolution for members to express their opinion about the manner in which the NRMA board election should be conducted.
The Court rejected this argument too:
[I]t is no part of the function of the members of a company in general meeting by resolution, i.e. as a formal act of the company, to express an opinion as to how a power vested by the constitution of a company in some other body or person ought to be exercised by that other body or person… The members of the plaintiff no doubt have a legitimate interest in how these powers are exercised, but in their organic capacity in general meeting they have no part to play in the actual exercise of these powers.
The Court, however, gave the shareholder activism movement a lesson on how to proceed in the future:
…As I see the matter, the only power vested in a general meeting of members which might be available to attain the object set out in the requisitions would be the passing of a special resolution altering the Articles of Association appropriately.
That shareholder activists have learned this lesson has been evident in the recent activism in relation to AGL Energy.