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Highlights:
ASX initiates review of shareholder approval standards after James Hardie's acquisition decision.
Governance practices to be reassessed amid widespread criticism from major funds.
Review will evaluate transactions from past years without affecting James Hardie’s ongoing deal.
The Australian Securities Exchange (ASX) is undertaking a formal review of shareholder approval regulations for major transactions in the consumer sector and other industries. This decision follows widespread dissatisfaction over the handling of James Hardie Industries plc's acquisition plans, a company listed among the prominent ASX Consumer Stocks (ASX:JHX).
Chief Executive Helen Lofthouse announced the review to address concerns that current rules might not sufficiently protect shareholder rights. The initiative aims to provide a more structured framework that could amplify shareholder involvement in significant corporate decisions.
Background to the Governance Review
The current situation stems from James Hardie’s pursuit of acquiring United States-based building materials company Azek. James Hardie received a waiver under Listing Rule 7.2, which permitted the issuance of new shares to Azek stakeholders without a general shareholder vote. This decision led to intense feedback from several large fund managers, who criticized the move for sidelining shareholder interests.
James Hardie's planned transition of its primary listing to New York further escalated concerns. Shareholders expressed frustration over the lack of opportunity to call an extraordinary general meeting before facing substantial dilution, as the transaction involved issuing new shares relative to existing capital.
Former leadership at ASX described the approach as a departure from a traditionally discretionary management style, labeling it as rigid and overly procedural. Stakeholders voiced dissatisfaction with the communication and transparency practices associated with granting such waivers.
Scope and Direction of the Review
The ASX clarified that any changes resulting from the review would not apply retroactively to the James Hardie transaction, given the legal complexities such an action would involve. Instead, the review focuses on future governance standards to ensure clearer, more consistent disclosure practices.
A significant component of the review will include examining historical transactions spanning several years. The objective is to assess how strengthened rules might have altered outcomes in previous instances, with an emphasis on maintaining market flexibility while enhancing shareholder protections.
One specific area under evaluation is the disclosure requirement. The ASX is exploring whether companies should be obligated to announce when they have obtained waivers related to significant deals, thereby enhancing transparency at the early stages of transaction announcements.
Investor Engagement and Consultation Process
Stakeholder consultation will form a crucial part of the next steps once the updated research is completed. The initiative marks the first major update to shareholder approval frameworks since a previous review conducted several years ago.
The ASX indicated its commitment to maintaining trust within the market by reinforcing governance standards that align with evolving expectations. Although James Hardie’s acquisition process will proceed under the existing regulatory framework, the controversy has acted as a catalyst for wider reform discussions across ASX-listed sectors, particularly in areas like ASX Consumer Stocks where corporate actions have substantial market impact.
