This AGM could trigger a chain reaction across corporate Australia

AGM season always brings its fair share of intrigue, but this year’s Orora's meeting on 15 October is shaping up as one to watch. Beyond the usual board elections and remuneration reports, shareholders will vote on a special resolution to amend the company’s constitution - one that could mark the beginning of a broader shift in Australian corporate governance.

The resolution didn’t originate in the boardroom. It comes at the urging of Allan Gray, Orora’s largest shareholder, which holds a 20% stake. Simon Mawhinney, Allan Gray’s Chief Investment Officer, says this was a case of picking the right battleground.

“We own 20% of Orora. It was the one where our muscle was probably strongest and where we were likely to get our way,” he told me.

Had the board resisted, Allan Gray was prepared to push the resolution through itself. Instead, after some deliberation, Orora’s directors agreed to put it forward and recommend it to shareholders.

At its heart, the amendment seeks to limit a company’s ability to issue shares as consideration for acquisitions without shareholder approval - the type of transaction that’s left investors blindsided in deals like James Hardie’s acquisition of US-based Azek earlier this year. That deal, which saw Hardie issue shares without offering existing investors a vote, sparked widespread frustration among fund managers and proxy advisors. Mawhinney says it was the final straw.

“James Hardie was the catalyst. This is the first time the big end of town, the super funds, the people who control the proxies for large pools of capital, realised at their expense how the current ASX rule settings don’t offer them the rights they would expect.”

Investors won't wait for the ASX to act

The issue lies with ASX Listing Rule 7.1 and the waivers the exchange grants. These allow companies to issue significant amounts of equity to third parties without putting the decision to a shareholder vote. While legal, it leaves investors with little say in potentially transformative transactions.

The ASX has since acknowledged the discontent and announced a review of the listing rule. But progress has been slow.

“The consultation process hasn’t even started,” Mawhinney said. “James Hardie’s deal was announced back in March. How long does it take to lodge a consultation paper? The ASX is working at pedestrian pace.”

For Mawhinney, waiting on the exchange isn’t good enough.

“We can’t wait for the ASX to change their rules or consult. They’re slow. The market is moving first.”

That starts with Orora, but it won’t end there. Mawhinney confirmed that another ASX-listed company will be tabling a similar resolution at its AGM, with discussions underway at three other large companies, including names in the ASX 20 and ASX 50.

The significance of Orora’s vote isn’t lost on him, who described it in characteristically blunt terms.

“I told the ABC this was Orora’s gift to corporate Australia and shareholders - and an up yours to the ASX because we’re fed up. Enough is enough. They’re asleep at the wheel.”

That sentiment echoes the frustration voiced at recent ASX roundtables, where fund managers and proxy firms made clear their dissatisfaction with the current settings. According to Mawhinney, early feedback on Orora’s resolution has been overwhelmingly positive. 

Not everyone is cheering 

Investment bankers and their lawyers, who benefit from the current flexibility, argue that tighter rules will reduce companies’ ability to respond quickly in crisis situations. Mawhinney acknowledges the point but isn’t swayed.

“We’re not preventing you from issuing shares. We’re telling you to do it on a pro-rata basis to existing shareholders. Even under a COVID scenario, you can’t just go and do a massive placement to Tom Jones down the road. You’ve got to make the offer available to shareholders pro-rata.”

To those who say the restrictions might limit flexibility in extreme circumstances, his response is equally direct:

“Make sure you run the business on a more sustainable footing such that you can withstand some of these shocks.”

Aligning with global standards

If adopted, Orora’s constitutional change would bring it closer in line with international norms. Mawhinney points to the New York Stock Exchange, NASDAQ, and Toronto Stock Exchange, where similar safeguards are standard. The UK goes even further, with companies routinely seeking annual shareholder mandates that limit board discretion. In that context, Australia looks like the outlier. 

“You’d be amazed at how frequently shareholder rights are put aside during transactions like these,” he said.

For now, all eyes will be on Orora’s AGM. The resolution requires a 75% majority to pass, meaning a substantial portion of the shareholder base needs to fall in line. But if the vote carries, it could set off a chain reaction across corporate Australia.

“People are going to wait until the Orora vote is known,” Mawhinney said. “But if 98% of the votes cast are in favour, the die is cast.”

In that scenario, early adopters like Orora could be joined by much larger companies. And with active managers pushing from below and international best practice setting the benchmark, the ASX may have little choice but to catch up.

For investors, the outcome of Orora’s AGM is about more than just one company’s constitution. It’s about the balance of power between shareholders and boards in Australian markets.

As Mawhinney puts it:

“This is about putting constitutional safeguards in place. If companies won’t do it, shareholders will.”