BHP expected to reject activists' push to give shareholders a greater voice
Attempts by corporate shareholder activists to have BHP accept advisory resolutions from shareholders look set for defeat but the momentum for companies to take greater account of shareholders’ views on matters of corporate governance, environmental sustainability and corporate ethics is mounting.
BHP shareholders in the UK will be asked to approve two shareholder resolutions on Thursday, UK time, that seek to give shareholders a greater voice in the company’s affairs.
The second resolution, calling on BHP to reconsider its membership of mining lobby group the Minerals Council of Australia, has received the most attention.
But the first resolution, which must pass to enable the second one to succeed, is potentially the more significant. It attempts to push the boundaries of shareholder democracy by proposing a change to BHP’s constitution to allow advisory resolutions from shareholders.
The resolutions are being proposed by the Australasian Centre for Corporate Responsibility, which has a small shareholding in BHP. It will be represented by a proxy at the UK annual general meeting.
“The purpose of the first resolution is to put Australian shareholders on the same footing as UK shareholder in BHP,” the centre’s executive director, Brynn O’Brien, said.
The ACCR argues that these sort of resolutions are accepted in many jurisdictions including the UK, Canada and New Zealand.
“Shareholders in the UK entity are permitted to put advisory resolutions,” O’Brien said. “Australian shareholders are prohibited by law from doing so, unless it is permitted under the company’s constitution. That’s why we are moving it.”
BHP is opposing both resolutions, arguing that to allow advisory resolutions would potentially interfere with directors’ duties to act in the best interests of company. On the MCA membership, it says this is a matter for the board and is under review.
“The proposed amendment to permit resolutions which are advisory would create uncertainty and confusion, whereas the division of responsibility for decision-making as between the board and shareholders needs to be clear,” BHP said in its advice to shareholders on resolutions to be moved at the UK and Australian meetings.
In relation to the argument about consistency with UK law, BHP says the ability to propose an advisory resolution has not been clearly established by UK case law.
“In any event, shareholders already have various mechanisms available to them to express views and opinions,” it argues.
These include asking questions at AGMs and, in the case of strong disagreement, voting against directors.
But increasingly shareholders are wondering whether there should be a greater ability to express their views through another mechanism that sits somewhere between the right to ask a question and the nuclear option of voting against directors’ reappointments.
Some of the larger shareholders hold consultations with senior management and directors of companies, where their views on corporate governance and environmental sustainability no doubt carry weight.
But individual consultations have the downside that shareholders are not aware of what other shareholders feel – for example, whether most shareholders in BHP support or oppose the company remaining within the MCA.
On Friday California’s largest pension fund, CalPERS, said it would support both resolutions at the UK meeting.
ACCR is hopeful other Australianbased superannuation funds may follow suit at the Australian meeting in November, despite the Australian Council of Superannuation Investors recommending against the resolutions to its members.
At least one corporate governance adviser to shareholders, Regnan, whose members hold 5% of the ASX, has taken a middle course, providing an in-depth analysis of the impact of the resolutions, without making a firm call either way.
It points out to members that an advisory resolutions would give clarity on the views of shareholders to the company and does not agree with the proposition that it would cut across directors’ responsibilities. But it is believed to favour legislative change rather than a change to BHP’s constitution, as the mechanism for getting this right for shareholders.
It regards advisory votes as an important middle ground for shareholders to indicate their view to boards.
BHP’s review of its membership of the MCA, and the departure of its chief executive Brendan Pearson, may well be enough for BHP to stave off concerns among its shareholder community about the discordant messages coming from the company and the lobby group on climate change.
BHP’s response so far has been that it is doing enough. The company has ordered a review of its membership of industry associations, which is due by 31 December. It has undertaken to publish an analysis of its own positions and those of advocacy groups it funds, such as the MCA and the Business Council of Australia.
But it has rejected a call to publish details of how much it pays, or to commit to ensuring consistency by withdrawing from groups that push views at odds with its own.
O’Brien said shareholders should have the right to know how much BHP is spending on the MCA and the impacts that uncertainty over energy policy, driven in part by MCA’s strong advocacy against emissions trading schemes, has on BHP company, which although a miner, is also big energy user. That energy policy uncertainty is widely blamed for higher energy prices.
Despite ACCR’s acknowledging that both resolutions will fail, it regards the most recent campaign as a success. It has got major shareholders and companies to think about how they interact with each other and gauge the views of an increasingly environmentally conscious community.
Shareholders already have various mechanisms available to them to express views and opinions.