Under normal circumstances a poorly performing tiddler with a $10 million market cap based in Adelaide would struggle to get attention from institutional investors, the media or the boards of bigger companies.
But sodium bicarbonate manufacturer Penrice Soda is now a corporate football after becoming the first Australian listed company to get a second strike in the controversial "two strikes" legislation that was introduced to curb excessive executive pay.
The Penrice board is scheduled to meet its fate at an extraordinary general meeting on Friday as shareholders either lob their vote by proxy or turn up at the Adelaide Convention Centre to cast their vote on whether or not to spill the chairman and deputy.
But behind the histrionics from various company directors and warnings from lobby group AICD that Penrice is a portent of things to come for other boards, the spill resolution is likely to be a storm in a teacup. The feeling on Thursday night was that the incumbents would likely be re-elected after taking a decision a week ago to cut costs by closing a soda plant.
The cold hard facts are that investors have been able to remove directors long before the "two-strikes" legislation was introduced, simply by calling an extraordinary general meeting if they hold more than 5 per cent of the stock or can organise 100 signatures from 100 investors, regardless of the amount of stock they own.
Shareholders can also lodge a protest vote against the re-election of directors. Every year, about one-third of directors must seek re-election, giving shareholders a chance to send a message about performance and strategy.
For all the fire and brimstone about the two-strikes rule becoming what the Penrice chairman described as a "lightning rod to which all shareholder disaffection can be directed, regardless of its nature", there is scant evidence.
Indeed, in the latest AGM season, the average vote for incumbent directors facing re-election was 95 per cent.
This says more about the passivity of investors than their support for the incumbents, particularly those in underperforming companies. The average turnout at annual meetings might have doubled from 30 per cent in 2000 to 60 per cent in 2010, but that means 40 per cent of investors still aren't casting votes.
Companies such as Hastie Group, Babcock & Brown, ABC Learning, HIH and One.Tel hardly heard a peep from investors before they collapsed. At the annual meetings before the collapse of HIH and One.Tel, more than 90 per cent of shareholders voted for the re-election of directors. In Hastie's case, three directors got a resounding 90 per cent-plus support for their re-election at the 2011 AGM. A few months later the company collapsed.
Hastie's administrators filed a report on Monday concluding that the directors may have potentially breached seven directors' duties, two of which are criminal, by failing to ensure the group's financial statements gave a "true and fair view" of the financial position and performance of the company, and offering securities where the disclosure documents contained misleading or deceptive statements.
The report is damning of the board, accuses the audit and risk committee of being "largely inactive" and reported most of the directors to ASIC for non-compliance.
It would be wrong to pin the blame of a company collapse on a few individuals but the number of the directors of failed companies who continue to sit on boards suggests shareholder passivity is alive and well and that the boys club is a much more powerful weapon than track record.
In the case of Penrice Soda, its army of retail investors were so fired up about poor performance that they cast enough votes to prevent the re-election of one director.
Penrice shows that when investors get together they can bring about change. The Australian Shareholders Association has been actively trying to mobilise retail investors to this end. Stephen Mayne believes the two strikes has had substantial market-wide benefits and brought public company shareholders accountability and board engagement.
Others agree. Institutional investor AMP Capital head of environment, social and governance research Ian Woods recently made a similar statement. "Before the introduction of the two-strikes rule, when we raised concerns with companies about remuneration, often our concerns fell on deaf ears. However, this AGM season we've seen a dramatic increase in the number of companies seeking to engage with us."
If more investors and companies engage, corporate Australia just might end up with better quality boards and strategies that are more aligned to shareholders.