Virtual shareholder meetings: who decides how companies make decisions?

Melbourne University Law Review, August, 2004 by Elizabeth Boros

[There is no consistent theoretical conception of the corporation either in the Australian corporations legislation or in the case law. This poses interpretive quandaries for courts when confronted with provisions in a corporate constitution which may be inconsistent with the policy underlying a provision of the corporations legislation and/or address a situation that was not in the contemplation of the legislature at the time the legislation was drafted. This article examines this issue using virtual shareholder meetings as a case in point. The conclusions have implications for how we legislate in the corporate law field more generally, as well as for the specific question of whether it is possible for a company to hold a purely electronic ballot.]

CONTENTS

I   Introduction
II  Why Shareholders Should Meet
      A  The Legislative Preference for Meetings
      B  Meetings in Practice
      C  Stakeholder Attachment to Meetings
      D  Judicial Defence of Meetings
      E  Critical Defence of Meetings
III How Shareholders Should Meet
      A  Directors' Meetings
      B  Shareholders' Meetings
IV  Do Shareholders Have to Meet?
      A  Could a Remote Ballot Substitute for an AGM?
      B  Under What Authority Did NRMA Ltd Hold Its Remote Ballot for
         Directors?
      C  Could a Company Limited by Shares Do the Same Thing?
           1  Cases on Unanimous Informal Consent
           2  Cases on Procedural Irregularities
           3  Cases on the Interrelationship between the Statute and
              the Corporate Constitution
V   Conclusions
      A  Can Public Companies Dispense with General Meetings Other
         than the AGM?
      B  Does It Matter if They Can?
      C  Legislative Style and the Theoretical Conception of the
         Corporation

I INTRODUCTION

One of the areas in which the internet could have the greatest practical impact on corporate law is in the context of shareholder meetings in widely held companies. Virtual shareholder meetings could herald either the elimination of the last vestige of director accountability to shareholders or the revival of a moribund forum by offering shareholders the prospect of a low-cost and geographically limitless means of participation. The issues revolve around three questions which are addressed in this article: (i) why shareholders should meet; (ii) how shareholders should meet; and (iii) whether shareholders have to meet at all.

The article focuses particularly on the last of these three questions, as it has received less critical attention to date than the other two. (1) It concentrates on widely held public companies, where the changes brought about by virtual meetings are likely to be the most profound.

II WHY SHAREHOLDERS SHOULD MEET

A The Legislative Preference for Meetings

When corporations legislation was initially drafted, it was assumed that decisions would be made at conventional physical meetings. Even though the legislation in most countries now allows at least some decisions to be reached in other ways, it still contains a bias in favour of decisions reached in the traditional way.

The Corporations Act 2001 (Cth) ('Corporations Act') evidences this bias quite strongly. Although it contains provisions for circulating resolutions of proprietary companies with more than one member, (2) the requirement that circulating resolutions be agreed to unanimously contains an implicit statement that this form of decision-making is inferior to a decision made at a meeting, which can be reached by majority. A more subtle example of this bias can be seen in the procedures dealing with protection of class rights from variation) In the absence of any provision in the corporate constitution dealing with the matter, the legislation allows the variation to be approved by the written consent of members with at least 75 per cent of the votes of the class, as an alternative to a special resolution (which requires a three-quarters majority at a meeting). The fact that, at least in widely held companies, not all shareholders will vote (either in person or by proxy) means that a higher absolute number of votes will generally be required under the written consent procedure.

Arguably, a similar assumption can be seen even in the more far-reaching written resolution procedures in the United States. (4) For example, in Delaware, legislation allows shareholders to act without a meeting, with the same percentage of votes that would have been able to approve such action at an actual meeting if all shares entitled to vote were present and voted. (5) This provision clearly places much less importance on the traditional meeting than does the Australian legislation. Nevertheless, in common with the Australian class rights procedure, the requirement for an absolute majority of votes under the written consent procedure will generally be more onerous than securing a majority of votes at a traditional meeting because of the low participation rates in general meetings of widely held companies. (6)