Penrice duo pass two-strike spill

Penrice duo pass two-strike spill

THE directors of Penrice Soda have called for the ''two-strikes'' policy to be revoked, after avoiding going down in history as the first board dumped under the contentious rule.

Chairman David Trebeck and deputy Andrew Fletcher were both re-elected after receiving 78 per cent of the vote at an extraordinary general meeting in Adelaide on Friday.

Forced to fight: David Trebeck says directors are capable of responding to shareholder sentiment.

Forced to fight: David Trebeck says directors are capable of responding to shareholder sentiment.

Photo: Wade Laube

Both men had already created a bit of unwanted Australian corporate history, with the small Adelaide-based chemicals manufacturer that has a market capitalisation of $10 million thrust into the spotlight for being the first board to be spilled and forced to fight for re-election.

Shareholders rejected the company's remuneration report for the second year in a row in October.

The ''two-strikes'' rule was designed to deliver shareholders a greater say in the executive remuneration policies of large corporates, particularly as pay packets bulged, often at odds with diminishing shareholder returns.


But after the meeting on Friday, Mr Trebeck said the negative vote against the remuneration report ''had more to do with general shareholder disaffection'' - the company's poor performance, a declining share price and the absence of dividends - than it did with excessive executive pay.

''Ideally, the two-strikes policy should be terminated,'' he said, adding that before the two-strikes rule, shareholders who were disgruntled with the performance of the board could still muster enough support to request an extraordinary general meeting and move against some or all directors.

Shareholder advocacy groups and large institutional funds have largely delivered positive feedback on the ''two-strikes'' regime, and the fact that company directors were now more open to shareholder feedback.

Influential fund manager AMP Capital said earlier this month that it had experienced a ''dramatic increase'' in companies engaging with it, when previously concerns ''fell on deaf ears''.

''I'm not convinced,'' Mr Trebeck said. ''I think directors generally are more than capable of identifying and responding to prevailing shareholder sentiment without needing a legislative sledgehammer to do it for them.''

He said defending the board spill had been a ''massively time- consuming'' process.

Penrice has suffered mounting losses and a plummeting share price in recent years, leading to agitation from 5 per cent shareholder London City Equities for board renewal.

Three potential directors put forward by LCE were defeated, each receiving about 25 per cent support.

Penrice recently announced it would cease production of soda ash - an ingredient used in glass-making - and instead import it in a bid to slash costs.

The vote on remuneration reports was previously non-binding, until the two-strikes rule was introduced in 2011. There are concurrent calls from companies and shareholders to simplify executive pay reporting requirements.

What is the two-strikes rule?

THE two-strikes law is designed to hold directors accountable for executive salaries and bonuses. It means an entire company board can face re-election if shareholders disagree with how much executives are being paid. The law is an amendment to the Corporations Act and came into effect on July 1, 2011.


THE first strike occurs when a company's remuneration report - which outlines each director's individual salary and bonus - receives a ''no'' vote of 25 per cent or more by shareholders at the company's annual meeting.


THE second strike occurs when a company's subsequent remuneration report also receives a ''no'' vote of 25 per cent or more.

When a second strike occurs, the shareholders will vote at the same AGM to determine whether all the directors will need to stand for re-election. If this ''spill'' resolution passes with 50 per cent or more of eligible votes cast, then a ''spill meeting'' will take place within 90 days.


AT THE spill meeting, those individuals who were directors when the directors' report was considered at the most recent AGM will be required to stand for re-election (other than the managing director, who is permitted to continue to run the company).


THE reform is intended to provide more accountability for directors and increased transparency for shareholders. When a company receives significant ''no'' votes on its remuneration report over two consecutive years, and has not adequately addressed concerns raised by shareholders, it is appropriate for the board to be held accountable through a re-election process.

Georgia Wilkins

Philip Wen

Philip Wen is the China correspondent for Fairfax Media.

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