The Treasurer recently announced (see related TT article) consultation on measures to make proxy advisers more accountable for their advice and super funds more accountable for how they exercise that advice (at company shareholders meetings). There has been a war of words between the Companies, the subject of that advice and the advisors complaining about the further scrutiny on their advice.
See below for further details about this.
Corporate leaders say putting new transparency obligations on influential proxy advice firms will avoid unfounded views about companies arising from a lack of consultation.
But prominent fund manager Matt Williams said the reform pushed by Treasurer Josh Frydenberg is an example of “over-reach” that misunderstands how institutional investors weigh up the advice provided by the research groups.
Alison Watkins, who is about to bow out of Coca-Cola Amatil after Coke Europe’s $9.8 billion takeover, said the reforms were very sensible and would ensure improved dialogue between proxy advisers and companies.
“I think the changes, in my first look, I think they seem very sensible,” Ms Watkins said. “They’ll promote a better dialogue between the company and the adviser, with a little bit of a longer lead time.”
Mr Frydenberg’s push to overhaul how superannuation funds drive the governance of listed companies will force proxy advisers to give companies they are reviewing a week’s notice of their voting recommendations and the research on which they are based.
The advice firms will also have to operate independently of super funds – a change that targets the influence of the Australian Council of Superannuation Investors.
Proxy advice firms, which include Ownership Matters, ISS and CGI Glass Lewis alongside ACSI, give non-binding opinions to institutional investors about how companies manage executive pay, director appointments and other governance issues. The investors use this advice to determine how they vote at shareholder meetings.
The reform push has stirred up simmering tensions between proxy firms and the director class.
Ms Watkins said a rigid and formulaic approach by “influential” proxy firms did not allow for companies to clarify and explain their actions.
“Different companies will all have different situations,” she said. “It may not be obvious [why a company is taking a particular action].
“Certainly as a listed company you do care a lot about what they [the advice firms] say. They are influential, there’s no doubt about that,” Ms Watkins said.
Arlene Tansey, a non-executive director with a string of ASX-listed companies including Aristocrat Leisure, TPG Telecom and software group WiseTech, said the proposed reforms would enhance transparency.
“I think the government is trying to strike a balance,” she said. Companies should be given time to respond to criticisms made by a proxy advisory firm,” she said.
“Why shouldn’t a company be able to respond? Either way, to exclude a voice that is important to a balanced outcome doesn’t make a lot of sense.”
Matt Williams said he thought Mr Frydenberg had gone too far.
“I just think there is a bit of over-reach,” the portfolio manager with Airlie Funds Management said, adding proxy advice was just another piece of research which a fund manager should use to make decisions.
“Proxy advice is the same as any other research. We’re not being forced to act,” Mr Williams said.
Fund managers used proxy advice alongside other reports and their own research. “It’s a piece of information. It isn’t in isolation generally.”
Bob Every, a former chairman of Bunnings’ owner Wesfarmers, and building products company Boral, said a few years ago fund managers began taking on proxy advice without questioning it.
“I think there was a time when there was a bit of a herd mentality,” he said.
Mr Every, who is a director of corporate advisory group Gresham, said proxy advisory groups did deliver an important function but fund managers needed to also be in contact with companies so they could rigorously test the advice and form their own view.
“It’s like all things. There’s got to be a balance,” he said.