It was a silly season special, but on December 30 The Australian’s business section gave a big platform to the Australian Institute of Company Directors (AICD), airing perennial concerns that proxy advisory firms be regulated and that the “dysfunctional” AGM needs reform.
Veteran business reporter Glenda Korporaal commented that falling AGM attendance numbers meant there was a risk retail shareholders could be more open to class actions or airing their grievances in other forums.
Truth be known, the membership of the AICD don’t like being criticised in public and doesn’t like shareholders voting against anything at the AGM.
This is why they want powerful proxy advisers, which are paid plenty to tell institutional clients how to vote, regulated by the government, even though all of them currently operate with a licence issued by the Australian Securities and Investments Commission. The AICD is also calling for proxy advisers to develop a code of conduct that covers issues such as conflicts of interest, rights of reply and the rules of engagement.
Aversion to criticism also partly explains why so many ASX 200 chairs engage with the Australian Shareholders’ Association before an AGM. They are seeking to win voting support and neutralise any public criticism. The ASA doesn’t have a code of conduct for its volunteer company monitors and probably should develop one.
Dean Paatsch, the founder of Ownership Matters -- the only Australian-based proxy advisory firm -- used the AICD push in The Australian to land a nationalistic sledge on his two US-based global competitors, ISS and CGI Glass Lewis.
“At best, codes of conduct provide moral cover for those offering poor service,” Paatsch told The Australian on January 1. “It won’t change the behaviours of shoddy advisers who offshore most of their analysis.”
It doesn’t matter who does the analysis or where they are based, the key issue is whether it is any good.
All three of the institutional proxy advisers competing in the Australian market have key people on the ground in Australia who engage directly with the leadership of major public companies. However, AGMs are often pretty lame because these proxy advisers never turn up and contribute to the public debate, instead preferring to keep their client reports top secret.
Ownership Matters doesn’t have a global footprint, and is most influential with the union-backed industry funds. ISS has a strong global following with the international index funds such as Blackrock and Vanguard. CGI Glass Lewis is supported by more of the Australian-based for profit funds, such as Perpetual.
It is theoretically good to have three competitors in the Australian market feeding governance and voting research to the major investors. However, the market can only support so much confidential research, which then raises the question of quality and offshoring.
The ASA is effectively a fourth proxy adviser and, in the most recent AGM season, it elected to release all of its voting intentions reports to the public in order to gather more undirected proxies from retail investors. ASA proxies peaked at about $8 billion before the GFC but have steadily declined along with AGM attendance numbers and broker turnover in recent years.
The ASA also effectively has a near monopoly over the questions asked at ASX 200 AGMs. So when the AICD launches repeated attacks on AGMs, it is an unsubtle dig at the questions being asked by ASA representatives.
It has become an increasing trend for the ASA company monitor to be the only speaker from the floor at AGMs (unless the company is a carbon polluter being attacked by green groups). However, when there has been a detailed engagement with the chairman before the meeting, these ASA contributions often end up being quite brief, or only focused on remuneration matters.
The ASA has also never been big enough to properly resource its company-monitoring function at the head office level, instead relying on about 100 volunteers across Australia to do the direct engagement and make most of the voting decisions. There’s a good case for public funding to grow ASA’s capacity.
By only covering the ASX200, ASA also leaves a lot of proxies on the table uncollected at smaller company AGMs, where there is often no debate whatsoever.
Given that the institutional advisers focus on the larger companies, there is a lot of very ordinary governance amongst smaller companies which goes unremarked upon at AGMs and in the business media.
But don’t expect members of the AICD to try to do something about that. Public companies are happy to pay for their directors to be members of the AICD, but they never offer to fund the ASA membership subscriptions for their retail shareholders. That would be a good start for those who genuinely want to see the AGM thrive and prosper as a communication and governance event.
Another option would be to provide incentives for shareholders to attend. It was standing room only at the 2015 AGM of Thorney Opportunities Ltd because chairman Alex Waislitz went to the trouble of getting the CEOs of some of the companies it had invested in to present at the AGM.
JB Hi-Fi, at the other extreme, is perfectly happy to have fewer than 20 independent retail shareholders attend its non-descript AGM in Abbottsford each year. And this is a company that specialises in entertainment and growing foot traffic.
A $50 gift voucher to the first 100 shareholders through the door would quickly energise the JB Hi Fi AGM, but that might lead to more questions and debate, which few public company directors are keen to encourage.*Stephen Mayne is a former director of the Australian Shareholders’ Association.