Proxy advisers and super funds to be more accountable for advice given and resulting voting decisions – Government proposals and Consultation Paper released

The Morrison Government is moving to increase the transparency and accountability of proxy advice.

Proxy advisers provide reports to institutional shareholder clients containing research on Australian Stock Exchange (ASX) listed companies and setting out voting recommendations on resolutions put at company meetings. Among the institutional shareholders they advise are superannuation funds who make decisions on behalf of the millions of Australians who have their superannuation savings invested in shares.

Collectively, superannuation funds own around 20 per cent of the Australian Stock Exchange (ASX), worth around $440 billion, and the market for proxy advice in Australia is dominated by just four firms [Ownership Matters, ISS and CGI Glass Lewis alongside ACSI].

It is important therefore that proxy advice is transparent and its quality and accuracy can be relied upon by investors and companies that are the subject of their reports. There is currently very limited regulation on how this proxy advice is formulated, provided, used and disclosed. Given the influence of proxy advisers on the conduct of businesses listed on the ASX, Treasury will consult on measures to help facilitate greater transparency of proxy advice.

For proxy advisers, the consultation will consider requirements to:

• obtain an Australian Financial Services License for the provision of proxy advice;
• provide their research and voting recommendations to the company that is the subject of their report at least five business days before providing it to their clients;
• notify their clients how to access the company’s response to the report; and
• if their client is a superannuation fund, be independent from their client.

For superannuation funds, the consultation will consider requirements to:

• make publicly available more detailed information on their voting record, including whether a vote was consistent with any proxy advice received; and
• outline how they exercise independent judgement in the determination of their voting positions.

In the United Kingdom and United States, there have been recent reforms to strengthen the oversight of proxy advice, with a focus on transparency, accountability and independence.

A consultation paper has also been posted on the Treasury website, with consultation closing 1 June 2021. SUBMISSIONS are due by 1 June 2021. See the Consultation Paper here.