Issues Impacting on Preparation of Upcoming Annual Reports and 2019 AGMs

Considering some observations made by proxy advisers, institutional investors and researchers pertaining to the 2018 financial year, we believe some key issues for 2019 AGMs will include:

  • The quality and comprehensiveness of disclosures focusing on:
    • Business strategy
    • Financial performance of the year in review
    • Operational performance of the year in review
    • Board composition, renewal and skills
    • Governance policy increasingly referencing the environment, the customer and society
  • The criticality of Board skills and experience and in this context a requirement for broader definitions of skill sets, not labels such as “finance”, “marketing”, “information technology”, “industry know-how”, and “people and culture”;
  • An explanation of the organisation’s diversity policy and criteria including experience, gender, residency, representation by age and ethnicity;
  • The Board’s stated engagement in leadership and Board succession planning including those Directors with a principal role at Committee level;
  • Policy statements communicating how the organisation will ensure management complies with corporate codes of conduct;
  • The relative weighting of corporate culture and the integrity of the relationship with customers and suppliers;
  • The oversight of risk and the identification of areas of risk;
  • The frequency and nature of Board performance evaluation and effectiveness and the Board’s response to shortcomings;
  • Shareholder engagement;
  • Discussion on the relevance of climate risk;
  • Discussion on the company’s exposure to cyber security
  • Transparency in discussion on remuneration policies and guidance received by the Board.

In addition to the quantum of remuneration, we anticipate a greater focus on the relevance of KPIs and the weighting of financial, strategic and operational KPIs for the leadership team, including the CEO.

Other issues which we believe will experience greater scrutiny will be the pay relativity between the CEO and direct reports and both the proportion and level of at risk reward.

In this context, we believe that shareholders will increasingly focus on the proportion of at risk reward potential being payable over the 3 most recent years including the 2019 Financial Year.

Within the framework of reward, there is clearly a focus on the choice and relevance of criteria regarded as driving performance, the rigour with which performance assessment is undertaken and the independence of the Board’s engagement in that process.

Transparency and completeness of descriptive material in Remuneration Reports will, in our opinion, also experience greater scrutiny.

Sustainability will also continue as a significant issue for Boards to manage both in terms of long term strategy and the allocation of capital, particularly as shareholders seek specifics on all aspects of the sustainability of an organisation and the Board’s engagement in the formulation of long term strategy and the allocation of capital.

Shareholder expectations will be high as these issues roll out through the current financial year.  Shareholders are likely to be more inclined to reward clarity with brevity and a direct response in relation to management’s reward, particularly performance aligned which reflects Board enquiry into management’s performance and outcomes of the Hayne Royal Commission and observations of ASIC, APRA and other regulators, where appropriate.