ASIC Gives the Gift of Advice

Companies need to identify ways to make annual general meetings (AGMs) transparent, ethical, and effective. To ensure that best practice occurs during AGMs ASIC reviewed ,the 2017 Annual General Meeting Season , and  proxy adviser engagement practices. ASIC observed the engagement practices of four proxy advisers, CGI Glass Lewis, ISS Australia, Ownership Matters, and Australian Council of Superannuation Investors and commented on ways that companies can improve their proceedings with shareholders.

ASIC had some concerns about the engagement practices of proxy advisers noting that companies were given short response times to define key issues, and that proxy advisers did not correct errors within their report.

Other areas of concern that ASIC reviewed were;

  • CGI Glass Lewis has a ‘blackout’ period for engagement, compared to other proxy advisers.
  • There is only one proxy adviser (ISS Australia) which publishes its drafts for company review before AGMs.

ASIC reviewed 80 proxy adviser reports. (See Table 1 below)

*source from ASIC review of proxy adviser engagement practices. Pg.6.

ASIC acknowledges that proxy advisers’ engagement policies reflect the following;

  • They strive to engage with companies and make their report accessible either before or after publication,
  • Are active with receiving feedback from companies if there are factual errors and need to resolve them,
  • Continuously strive to be independent.

Overall, ASIC found that the current practices covered engagement sufficiently.

For investors to understand the market, proxy advisers were encouraged to have a balance between managing companies and organising their timing constraints. ASIC suggests the following guidelines for proxy advisers to follow;

  1. Give clear explanations of the policies in terms of engagement,
  2. Voting guidelines must be accessible,
  3. Companies need to be informed of any ‘against’ recommendations along with the report. There should be explanations for all recommendation,
  4. Reports must be precise for companies that are the subject, and
  5. If there is feedback in their reports, steps should be taken to change the errors as soon as possible.

To ensure that the ASX 200 companies are following best practices, ASIC advised that companies needed to stay informed on proxy advisers’ perspectives. Among the ASX 200 companies, the eleven first strikes in 2016 was reduced to five in 2017 (see Figure 2).

*Sourced from ASIC’s Annual general meeting season report. Pg. 6

Although there had been a decline in the number of strikes that ASX200 companies received over the 2016 and 2017 years, there had been an increase in the number of companies receiving a close call ‘against’ vote. This ranged between 20-24% in 2017 (See figure 3).*Sourced from ASIC’s Annual general meeting season report. Pg. 6

According to ASIC there were several reasons for companies receiving ‘against’ votes on the remuneration report.  This included excessive quantum of pay, the structure of pay and lack of clarity around policy.

Incentive Plan Design

For companies to be successful ASIC encouraged them to design their incentive structures to raise long-term company value. This might also involve the use of non-financial targets. Remuneration structures should be clear to ensure objective measurement of performance.

Companies’ incentive structures should be transparent and disclosed in their remuneration report. ASIC believes that if companies follow these suggestions, it will help shareholders to have a clearer understanding of performance-based payments.

Other Areas of Consideration

In its report, ASIC also evaluated ways that companies could create meaningful engagement with shareholders during AGMs. They found that companies were considering restructuring their AGMs using advances in technology to improve engagement with shareholders.

They suggested that there were other areas that needed to be restructured at AGMs. A key area of concern for ASIC was changing the resolution. ASIC identified that 25 companies in the ASX 200 continued to make a resolution through a show of hands, instead of a poll.

Their concern for using a poll rather than a show of hands was to ensure that all shareholders could vote if they were unable to attend the AGM. ASIC explains;

We strongly encourage companies to adopt a poll on all resolutions as a matter of course, as good corporate governance. Polls more democratically reflect the principle of ‘one share one vote’ and reflect the wishes of shareholders attending the meeting as well as those who have voted by proxy.” Pg. 15.

Although most companies developed strategies to engage with shareholders, some did not create effective structural changes for AGMs.

ASIC’s report gives insightful advice to companies and shareholders and contains useful recommendations for proxy advisers to ensure that AGMs are meaningful for companies and their shareholders.

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