Leading directors concerned about use of the two strikes rule as a proxy for other concerns

The ‘two-strikes’ rule, over three years after its introduction.

GOVERNANCE LEADERSHIP CENTRE ROUNDTABLE DISCUSSION (OCTOBER 2014): COMMENTS ON THE ‘TWO-STRIKES’ RULE

AUSTRALIAN INSTITUTE OF COMPANY DIRECTORS (VIDEO), OCTOBER 2014

In this video, Jerry Maycock FAICD (Chairman, AGL) and John Colvin FAICD (Former CEO, Company Directors) discuss the ‘two-strikes’ rule, over three years after its introduction. Mr Maycock observes that the “vote on remuneration is being used as a proxy for other concerns about the corporation”, including general performance concerns. He comments that “more insidiously, it is probably still the most practical way for people who have ulterior motives to get some publicity, get some traction”, particularly activists.

Mr Colvin noted that still the “jury is out” on whether the rule is in its right form.

There is potential for increased misuse of the ‘two-strikes’ rule if shareholder activism grows in Australia, as is widely believed to be the case. While activism has not so far been a major issue in Australia, recent media articles have reported on the rising tide of activism, including speculation by investment bankers from JP Morgan, Goldman Sachs and Credit Suisse. In this environment, it is ever more important that boards and management seek to ensure effective engagement with their shareholders.