The stability of Westpac's board looks more uncertain if investors follow the lead of influential proxy advisors and vote against the election of key directors at the bank's annual general meeting on December 12.
If the blowback over the bank's handling of anti-money laundering practices and its response to last week's allegations of misconduct by Austrac escalates, the Westpac board faces the threat of a spill at the AGM.
CGI Glass Lewis and ISS are both advising institutions to vote against the re-election of Peter Marriott, the former chief financial officer of ANZ who has been a director of Westpac since 2013 and head of the bank's audit committee.
ISS is also advising shareholders to vote against the re-election of Nerida Caesar, a director since September 2017 who is also on the risk and compliance committee. Caesar is the former CEO of Equifax.
Investor disdain for the bank may continue to build in light of a leak to the
Financial Review this morning that Westpac delayed reporting it's failure to comply with anti-money laundering laws until 15 months after the issue was first uncovered by junior staff.
The bank's remuneration report was rejected by shareholders at last year's AGM and a "second strike" next month would trigger a spill resolution for the Westpac board.
If 25 per cent or more of the shareholder votes cast at a listed company's annual general meeting oppose the adoption of the remuneration report, the company has a first strike recorded against it.
A vote against the remuneration report the next year is counted as a second strike. Following a second strike a spill resolution must be put to shareholders at the same meeting. A spill of the board occurs if 50 per cent or more of eligible voters are in favour.
A spill meeting must be held within 90 days of a passed spill motion. If the spill motion is not passed the slate is wiped clean.
In addition to Westpac, some of the companies that received a strike at last year's AGMs were ANZ, Austal, Brickworks, Clean Teq Holdings, Computershare, Emeco Holdings, Goodman Group, Harvey Norman, Karoon Energy, Mineral Resources, Myer, NAB, Tabcorp and Telstra.
Of those, two were second strikes - Myer and Karoon. One, Mineral Resources, was a third consecutive strike.
The two-strikes rule was introduced in 2011, with the aim of increasing directors' accountability to shareholders on executive pay issues, which are often contentious.
However, the vote against adoption of the remuneration report can often be seen as a more general protest vote against the company's performance or its handling of a particular issue.
The two-strikes rule restricts the ability of key management personnel (directors and senior executives) and their related parties to vote on the remuneration report and other "remuneration-related" resolutions (such as the spill motion).
Before the introduction of the rule, listed companies were required to put their remuneration report to a non-binding shareholder vote at the AGM.
According to an ASX study, between 2011 and 2013, 306 companies received first strikes and 51 of them received a second strike. This resulted in 12 board spills.