IFSA amends Blue Book for remuneration guidelines
IFSA has issued Guidance Note No. 2.00 'Corporate Governance: A Guide for Fund Managers and Corporations'. It is an update of what is commonly known as the IFSA Blue Book.
The Investment and Financial Services Association Limited (IFSA), is a national not-for-profit organisation which represents the retail and wholesale funds management, superannuation and life insurance industries. IFSA has over 145 members who are responsible for investing over $1 trillion on behalf of more than ten million Australians. The Guidance Notes are issued by IFSA to assist its Members to provide leadership in promoting matters central to the interests of all shareholders. Compliance with the various IFSA Guidance Notes is ‘voluntary but strongly encouraged’ for IFSA members. IFSA also issues ‘Standards’ that are compulsory for its members.
The IFSA Blue Book contains 23 ‘guidelines’ on various topics: Board and executive remuneration is covered by Guideline 14; director equity plans are covered by Guideline 11; Appendix A includes a suggested format for remuneration disclosure; and Appendix D lists the other complementary IFSA Corporate Governance Standards/Guidance Notes. In particular, IFSA Guidance Note No. 12 covers Executive Equity Plans and Guidance Note No. 13 covers Employee Share Ownership Plans.
The Blue Book Guidelines are generally consistent with the ASX ‘Corporate Governance Principles and Recommendations’ and, for cross-referencing purposes, the relevant ASX Principle is cited in each Guideline.
In most areas the IFSA guidelines serve as a useful guide or reminder, but do not break new ground, and partially duplicate guidelines issued by ASX and other bodies providing governance guidelines. However issuance of guidelines by IFSA adds weight, and helps to confirm that the “governance chain” between investors, boards and company management is becoming clearer and more continuous, with institutional shareholders more likely to vote and to disclose their voting basis, intention and actual vote, and to require boards to either comply with mainstream principles, or explain why not.
This approach seems (in the view of Guerdon Associates) to be consistent with the finely-balanced sweet spot where “governance” contributes to corporate and national economic performance while maintaining community confidence in the corporate sector. One comment in the guidelines seems to us to introduce a new element of potential disclosure related to incentive schemes, and the possibility for informed judgment by shareholders on performance of the board. This is described as follows by IFSA:
However, shareholders have a right to know the costs of such schemes and the success of these elements of remuneration measured against the original reasons for their use.
This comment suggests that boards and companies should report back to shareholders on a “post-implementation audit” of incentive schemes. This interesting suggestion would go beyond existing Australian disclosures, and beyond the US practice of requiring company performance on total shareholder return to be presented in every annual report. We support the thrust of this recommendation.
The guidelines can be found HERE.