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Owner's Expectations Manual

8 Shareholder Consultation and Strategic Initiatives

8.1 Consultation, expectations and thresholds

  • It is important to distinguish between “approval” and “consultation”. In the SOE environment, most consultation with the shareholder is just that (unless the board is required to seek approval and/or an equity injection is required) and the responsibility for decision-making lies with the board.

8.1.1 Approval

  • Under the Companies Act, SOEs may not enter into a “major transaction” (as defined by that Act), unless it has been approved by a special resolution signed by shareholding Ministers, or is contingent on such approval.

8.1.2 Consultation

  • Shareholding Ministers expect the board of each SOE to include in the company's SCI the matters on which they will be consulted before certain transactions or strategic initiatives are entered into.
  • Additionally, Ministers expect to be consulted on significant transactions and initiatives prior to being entered into and these should be reflected in the SCI, as appropriate. The thresholds for identifying projects that will require ministerial consultation are set out below. The threshold amount applies to a single investment or cumulatively to a series of linked investments.
  • The thresholds under long-term review are to be consistent with the consultation thresholds listed below. This mirrors ministerial expectations around post-investment review projects. This threshold does not prevent Ministers from setting a higher/lower threshold for specific companies or projects, and the letter of expectation can specifically address this.

Thresholds for projects requiring ministerial consultation

  • For SOEs with a book value of equity <$100 million: Transaction >$5 million
  • For SOEs with a book value of equity between $100 million and $1 billion: Transaction >5% of book value of equity
  • For SOEs with a book value of equity >$1 billion: Transaction >$50 million
  • Under section 14(2)(h) of the SOE Act, the board of each SOE is required to include in the SCI for the group the procedures to be followed before the group subscribes for, purchases or otherwise acquires shares in any company or other organisation. Shareholding Ministers expect these procedures to include an obligation to consult with them where the acquisition exceeds a threshold that is agreed by shareholding Ministers and the board as part of the annual business planning round.
  • Under section 14(2)(j) of the SOE Act, the SCI should also include any other matters agreed by shareholding Ministers and the board. Shareholding Ministers expect this to include an obligation to consult with them on matters such as the sale or other disposition of shares, the acquisition or sale of assets and any capital investment, where such transactions exceed a threshold agreed by shareholding Ministers and the board as part of the annual business planning round.
  • The board of each SOE may also wish to consider agreeing separate consultation thresholds with shareholding Ministers for transactions which relate to the SOE's core business activities, and for transactions which are not core business activities but which fall within the nature and scope of the SOE's activities as defined in its SCI.
  • In addition to the above, shareholding Ministers expect the board of each SOE to consult with them in relation to any proposed activity that falls outside the nature and scope of the SOE's activities as defined in its SCI, as this will require an amendment to the SCI.

8.1.3 Inform

  • Shareholding Ministers expect the board of each SOE to inform them, in advance, of any transaction that does not meet the consultation thresholds mentioned above in Section 8.1.2 and those specified in the company's SCI, but which falls within the scope of the “no surprises” policy.
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