Two Strikes Rule: Corporate Governance

This assignment examines the 'two-strikes' rule, a significant aspect of corporate governance. It delves into how shareholder votes against remuneration reports can trigger this rule, leading to potential consequences for companies. The document provides insights into the historical context, legal framework, and practical implications of the 'two-strikes' rule, drawing upon academic literature and real-world examples.

CORPORATE LAW

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK1.............................................................................................................................................3
1.1) Powers of board of Waldmart and its shareholders for issue of bonus shares.....................3
1.2) Can shareholders stop the directors for the proposed dividend...........................................5
1.3) Consequences of second strike on Waldmart Ltd. and directors.........................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Corporate law is the study of the behaviour and the interaction that carries out between
the shareholders, employees, directors, creditors and all the stakeholders like the society,
community and the customers. The basic and the main function of this law is to give equal
opportunities and power to the different people related to the corporate (Armstrong,
Balakrishnan and Cohen, 2012). Moreover all the laws related to this will only be applicable on
those companies who are registered in the company act of Australia. It has its two aspects
corporate governance- where the different powers of the company are drawn and corporate
finance- where the ways to issue the capital is been concern.
In this assignment report the Waldmart Ltd's issuing of the bonus shares and the outcome
that the directs will face are to be described and the reactions that being the shareholders of the
organisation gives to the proposal of directors.
TASK1
1.1) Powers of board of Waldmart and its shareholders for issue of bonus shares.
The board of directors are the governing body who get elected in the organisation as to
look over all the operations of the firm as well as they the responsibility and the duty to carry out
the various plans and decisions for the sake of the organisation. They are determined with their
roles, responsibilities, duties and powers towards the success and growth of the organisation in
the corporate world. They are hired to perform all the routine activities on the behalf of
shareholder of the company. They are very much liable and accountable to the shareholders in
the Annual General Meeting(AGM) regarding all the operation's investments, return all the
report are to be presented by them to the shareholders of the company (Hillier, Grinblatt and
Titman, 2011). Their ultimate aim and objective is to prosper the company by guiding the people
to carry out the several operations in the proper and effective manner. The are having many
responsibility and powers that they must follow and implement in the organisation to properly
carry the functions and operation of it in an appropriate manner.
Power of the directors
 They have the power to enter into the management contract.
 Taking legal actions.
 Making the Long term plans.

 Organising and maintaining the accounting and book keeping of the company.
 Issuing of the shares.
 Understanding and acting for the interest of the shareholders.
 Monitoring the relationship of the stakeholders and the shareholders of the organisation.
As concerned with the case the board of the organisation has the power to issue the bonus
shares to the shareholder as the issuing of the shares can be allotted with their will. The board
can only issue 10% bonus shares and the dividends to the shareholders. But the cited case
describes that the dividend has increased and raise of with 25% of the last year's dividend. Hence
it can become an issue to execute this action. The board is planning to motivate and encourage
the shareholders to coordinate and invest more in the business (Barac and Moloi, 2010).
Although the responsibility and powers lies with the board of directors but they are representing
the firm for the shareholders hence, it is very must for them to discuss this proposal with the
shareholders.
Powers of shareholders
 They have the power of voting out the directors.
 They can request for the information of the organisation in written form.
 The statement of share are requested by them form the board of directors.
 Suggestions and recommendation can be given by them.
 The refusal of the decisions made by the board of directors can be done by them.
As the cited case the Jim Smith and other shareholders as well as the investors are not
happy and are not agreeing upon the proposal of issuing the new share and increased dividends
to the existing shareholder. They feels the financial condition is not good and it is unstable,
hence the proposed plan should not be executed by the board of directors. They have the power
to compel the decision of the board of directors by not agreeing upon the plan (Gaughan, 2010).
In the upcoming Annual General Meet they can oppose and can directly compel for the new
strategy of the organisation.
The board of the directors as a representative of all the shareholders it is very essential to discuss
the plan and ideas before implementation, as the dividend rate has increased more than 10% as
mentioned in the Article of Association(AOA) it has to very discussed with the shareholders as
to figure out the clear aspects and the decision can be made accordingly.

1.2) Can shareholders stop the directors for the proposed dividend.
As specified in the company's act 2006, sec829 to sec853 the board of the directors has
the right and the power to declare the pay of interim dividend to the shareholders in the financial
year for six months in the starting. The board of director will recommend this in the Annual
General Meeting of the company which is based on the related profits made in the financial year
of Waldmart Ltd (Lynn, 2011). Then they can pass all the resolution as the provision of Table
one declares.
The provision of Table A Model Article.
 The company can declare the dividends, and they can pay the dividends to the
shareholders.
 The dividend can not be declared until and unless the recommendation are made. The dividends are not paid to the non preferred right
 Against the right of the shareholders the dividends can not be paid.
As the case defies the shareholders of the company are not in the favour of the decision
that the board of the directors has proposed. In the Article of Association the board of the
directors can inculcate the new terms and the condition related to the dividend and the issuing of
the shares to the shareholders. But the new plan can be only executed in the next coming
financial year therefore the shareholders can use their power to refuse the proposed plan of the
paying of increased dividend.
At in the Table A Model Article it is very clearly mentioned that the decision of the board
of the directors can be opposed by the shareholders if the taken plan of decision is not
satisfactory for all the linked people. And also the increased dividend as mention in the AOA is
very high then the shareholders can very effectively use their powers to stop the board of
directors in paying the interim dividend to each and every shareholders. The AOA is very
necessarily should be followed by the company as because there all the duties and the
responsibilities of every individual person is been described negligence of any of the act and
policies can create a big problem to the company and the people related to the firm.
The shareholders also has the equal rights to agree and refuse the several decision and the
plans that are been declared by the board of the directors of Waldmart Ltd (Tirole, 2010). As the
law as well as the commercial standard of the company says that the shareholders has the right to
reject the proposal that the board of the directors has declared. The rejection can be done only

when the shareholders are not finding the decision effective for the betterment of the firm's
growth and survival as the financial condition is not as stable seen by the previous Annual
General Meeting of the company.
The shareholders has to be pleased and they are to be convinced by the proposal then
only they can assure the acceptance of the proposed plan of the interim dividends to the
shareholders, although the decision are in the favour of the shareholders but the financial
condition is not good as they (the shareholder's point of view) feel. Hence the plan that are
declared by the board of the directors can be stopped by the shareholders and they can vote
against the plan and is the vote takes place more than 25% then the strike situation can take place
in the company, as the strike situation takes place this can become a threat to the directors of the
board (Olson and Briggs, 2011). There can be situation where the re-election can be proposed by
the shareholders if strike happens repetitive manner.
According to the shareholders including Jim Smith the accepting of the proposal done by
the board of the directors is not a wise action to do in the current situation. Financial crises are
there as well as the rate of the percentage increase in the divided in 25% from the previous year
which is very high 10% is the limit that has been set and mentioned in the AOA of the company,
it has been cross the limit hence the proposal seem useless and a wastage for the company by the
shareholders. Hence they can stop the directors to increase and to pay the dividends to the
existing shareholders of the company. Yes they have the power to oppose the decisions of the
board of directors of the company.
1.3) Consequences of second strike on Waldmart Ltd. and directors.
Remuneration report is the report that is presented by ten director of the company to the
shareholder in the annual general meeting of the company that consists of the detail regarding the
remuneration that is paid to the executive and employees of the company. Remuneration may be
in form of salary, bonus and other benefits (Hiller 2013).
The concept of two strike law come in force to make the director accountable for the
salary that is paid to the executive and the bonuses that are paid to them. If the shareholders of
the company are dis-agree with the amount that is paid to the executive by way of salary and
bonus then the board of director of the company may face the re-election situation in their
company. It affects the company in adverse manner. The corporate act came in force with effect
from 1st July 2011 in this regard.

 First strike: This situation arise in the company when more than 25% votes are received
in negative related to the salary and bonus to the director (Agrawal, 2013).
 Second strike: this situation arise in the company when subsequent remuneration report
also receive 25% or more negative votes. In this situation, shareholders of the company
vote for the re-election of the directors of the company. If such resolution passes then the
situation of re-election arise.
Following are the impact of second strike on Waldmart Ltd and on its directors:-
1. At the spill meeting, the director of the company required to stand for the re-election.
2. If the directors of the company are removed in the meeting then it is required for the
company to have at least 3 directors on their board other wise company stands for
dissolution.
3. It affects the career of the director.
4. If company receives strike by the shareholders of the company against the remuneration
report other than remuneration then their careers are affected.
5. When strike took place in the company then it affects the goodwill and brand value of the
company in market.
6. It shows that directors of the company are taking undue advantages from their power.
7. It shows the lack of responsibility of the directors (Adekoya, 2011).
8. It affect the investments of the company and no investor wants to invest in the company
because of strike.
CONCLUSION
In this assignment report the power and the responsibilities are described that are related
to the shareholders of the company as well as the board of the directors. The focus is done upon
the fact of the new proposed plan of issuing of the bonus shares and the increased dividends to
the existing shareholders of the company. It is been also concluded that the reaction that the
shareholders and the investors of the company has shown to the declaration of the plan. The
different rights according to the amendments and the laws has been described that the
shareholders and the board of directors have in their part. The consequences of the two strike has
been understood if the shareholders of the company votes against the remuneration report.

REFERENCES
Books and Journals
Adekoya, A.A., 2011. Corporate governance reforms in Nigeria: Challenges and suggested
solutions.Journal of Business Systems, Governance and Ethics.6(1). pp.38-50.
Agrawal, A.K., 2013. The impact of investor protection law on corporate policy and
performance: Evidence from the blue sky laws.Journal of Financial Economics.107(2).
pp.417-435.
Armstrong, C.S., Balakrishnan, K. and Cohen, D., 2012. Corporate governance and the
information environment: Evidence from state antitakeover laws.Journal of Accounting
and Economics.53(1). pp.185-204.
Barac, K. and Moloi, T., 2010. Assessment of corporate governance reporting in the annual
reports of South African listed companies.Southern African Journal of Accountability
and Auditing Research.10(1). pp.19-31.
Baumgartner, R.J. and Ebner, D., 2010. Corporate sustainability strategies: sustainability profiles
and maturity levels.Sustainable Development.18(2). pp.76-89.
Gaughan, P.A., 2010.Mergers, acquisitions, and corporate restructurings. John Wiley & Sons.
Hiller, J.S., 2013. The benefit corporation and corporate social responsibility.Journal of Business
Ethics.118(2). pp.287-301.
Hillier, D., Grinblatt, M. and Titman, S., 2011.Financial markets and corporate strategy.
McGraw Hill.
Lynn, D.M., 2011. The Dodd-Frank Act's Specialized Corporate Disclosure: Using the Securities
Laws to Address Public Policy Issues.J. Bus. & Tech. L.6. p.327.
Olson, J.F. and Briggs, A.K., 2011. The Model Business Corporation Act and corporate
governance: an enabling statute moves toward normative standards.Law and
Contemporary Problems.74(1). pp.31-43.
Small, M.L., 2011. The 1970s: the committee on corporate laws joins the corporate governance
debate.Law and Contemporary Problems.74(1). pp.129-136.
Tirole, J., 2010.The theory of corporate finance. Princeton University Press.
Online
What is the 'two-strikes' rule?. 2017. [Online]. Available through:
<http://www.smh.com.au/business/agm-season/what-is-the-twostrikes-rule-20121008-
278us.html>. [Accessed on 20th May 2017].