The ASIC review focused on the four major proxy advisers in Australia, CGI Glass Lewis, ISS Australia, Ownership Matters and the Australian Council of Superannuation Investors.
The review took place in the context of the 2017 AGM season, following a roundtable hosted by ASIC that was attended by proxy advisers, investor representatives and relevant industry groups, including AICD.
The report does not identify any significant concerns regarding engagement practices in the industry. It emphasises that the focus of company and proxy adviser engagement must be on ensuring investors receive independent, well-informed recommendations based on accurate information.
The report sets out a number of recommendations for both companies and proxy advisers regarding engagement. However, it is clear that ASIC remains of the view that pursuing new industry best practice guidance is not necessary, including because existing guidance already covers engagement adequately.
In terms of ASIC’s review, the report notes that each of the proxy advisers’ engagement policies appear to reflect:
- a willingness to engage with companies and make their report available either before or after publication
- a desire to ensure independence
- a willingness to receive feedback from companies in relation to potential factual errors and to correct material factual errors
Of the 80 proxy reports reviewed by ASIC, 65 involved engagement with companies the subject of the reports; 11 did not involve engagement because the relevant companies declined to engage or did respond; and 4 did not involve engagement – in 2 cases the proxy adviser declined the company’s request to meet and in 2 cases there was no contact at all. Topics of discussion during engagement included matters relating to corporate governance, remuneration, board accountability, independence and skill sets, clarifications of company disclosure and communications to inform companies of an “against” recommendation.
The report refers back to the ASIC report on the 2017 annual general meeting season and repeats the observation that there were reports of large institutional shareholders deciding to vote “against” resolutions that were the subject of a “for” recommendation. ASIC suggests that this is consistent with representations made by institutional shareholders that they do not follow proxy adviser’s recommendations automatically but rather make their own voting decisions.
Company and proxy adviser recommendations
The report contains a number of recommendations for both companies and proxy advisers in relation to engagement.
In particular, ASIC encourages companies to:
- actively seek out information about proxy adviser engagement practices
- engage proactively with proxy advisers outside of peak periods as an extension of ongoing active engagement with shareholders
- release notices of meeting to the market as early as possible
- ensure disclosure is fulsome, clear and not overly complex
- continue engaging directly with investors regarding voting decisions
- in relation to “against” recommendations, seek to understand underlying concerns
While noting that it is up to individual proxy advisers as to how it strikes a balance between engaging with companies, maintaining independence and managing timing constraints, ASIC encourages proxy advisers to:
- clearly explain and make available their policies in relation to engagement
- make voting guidelines easily accessible
- where a draft report is provided to a company for fact checking, endeavour to provide sufficient time for companies to respond
- notify companies of any “against” recommendations following release of a final report and explain the reasons for those recommendations
- be transparent in reports about their engagement with companies who are the subject of the reports
- promptly consider any feedback in their reports and take steps to rectify any substantive errors as soon as possible
We note that broader concerns were raised at the roundtable held last year that go beyond proxy adviser engagement practices, including around examples of formulaic approaches to proxy adviser voting recommendations; the risk of conflicts of interest where proxy advisers extend their services to include governance consultancy services for listed entities; a lack of accountability notwithstanding the potential impact voting recommendations may have on corporate stakeholders; and general quality issues.
Proxy adviser practices are an issue of concern for the AICD, and we would welcome feedback from our members on their own experiences with proxy advisory firms. The AICD remains of the view that an industry code of conduct addressing resourcing, competency, conflicts of interest and a framework for engagement would be a positive step.
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