In January ASIC published a report that provides an overview of some of the key trends observed for AGMs held by S&P/ASX 200 (ASX 200) listed entities between 1 October 2017 and 31 December 2017. These observations inform ASIC’s ongoing regulatory work in corporate governance.
ASIC also provided good practice recommendations.
Some of these topics (including, according to ASIC, proxy advisers) will likely be the subject of further reports or communications.
For ASX 200 companies ASIC observed:
- a significant decline in the number of first strikes on the remuneration report, from 11 in 2016 to five in 2017
- only one of the 11 companies that received a first strike in 2016 received a second strike
- a sharp increase in companies receiving a close call ‘against’ vote of between 20%–24%, from five in 2016 to nine in 2017
- for nearly two-thirds of companies, voting results on remuneration reports in 2017 were consistent with 2016
Proxy advisers recommended against 13% of 1,125 resolutions. The average against vote on these was 17%.
The data indicates that the resolutions attracting ‘against’ recommendations from the proxy advisers included those relating to remuneration reports, director elections and key management personnel (KMP) remuneration, with remuneration reports receiving the greatest proportion of ‘against’ recommendations (as a percentage of resolution type).
Of the six ASX 200 companies that had strikes on their remuneration report during the period of ASIC’s review, one received ‘against’ recommendations from three proxy advisers, four received ‘against’ recommendations from two proxy advisers and one received no ‘against’ recommendations from proxy advisers.
For context, of the 200 remuneration report votes, 19 companies received an ‘against’ recommendation from one proxy adviser, nine companies received ‘against’ recommendations from two proxy advisers and one received ‘against’ recommendations from three proxy advisers. This sums to 29 companies that received an ‘against’ resolution from at least one proxy adviser.
Amid all the campaigning for and against additional proxy adviser regulation, the following observation by ASIC probably says, in a nutshell, why it is not suggesting additional regulation at this time:
“The average ‘against’ vote for all resolutions attracting at least one ‘against’ recommendation was not sufficiently significant to alter the outcome of the resolution (in terms of the resolution being passed or a strike being achieved on the remuneration report).”
Interestingly ASIC’s guidance in relation to proxy advisers is aimed solely at issuers:
- understand the engagement practices of proxy advisers
- engage early and proactively with proxy advisers, as an extension of companies’ ongoing active engagement with their shareholders
- release notices of meeting to the market early and ensure disclosure to the market is clear and not overly complex.
Director elections – no sinecure
An interesting observation was that investors are more likely to vote against director elections than prior, similar to trends evident in the UK.
That is, the overall sentiment in relation to directors was more negative, with resolutions for the election of directors attracting a noticeable increase in terms of both the number of resolutions receiving material ‘against’ votes and the average vote ‘against’.
ASIC data shows that the average vote against the election of directors increased, while the average vote against other resolutions decreased.
In fact, more directors received material against votes (i.e. greater than 10%) compared to the prior year (58 in 2017 versus 38 in 2016). In contrast, the material against votes for remuneration declined (42 in 2017 versus 54 in 2016).
Diversity and ESG
Gender diversity and specific environmental, social and governance (ESG) issues such as climate risk were a focus, with diversity issues resulting in ‘against’ recommendations in many of the material votes against director elections noted above. This was facilitated by ACSI (Australian Council of Superannuation Investors) members’ policies not to support director elections for all-male boards.
Effectiveness of AGMs
Of particular concern was the fact that 25 companies in the ASX 200 continued to decide resolutions by a show of hands rather than by conducting a poll. This is surprising and disappointing given the technology now being made available by share registry firms to facilitate efficient polls.
Despite active lobbying by issuers and their representatives, ASIC has decided that additional proxy adviser regulation is not warranted at this stage. While this was not particularly helped by discredited research from one of the lobbyists, and proxy advisers worked particularly hard during 2017 to demonstrate engagement and responsiveness, it was probably the underlying research results by ASIC on voting and proxy adviser recommendation statistics that decided no action was warranted at this stage.
Nevertheless, ASIC maintains a watching brief, and has left its door open to issuers with a legitimate compliant. ASIC will not be averse to counselling individual proxy adviser firms that are failing in their duties. Nor will ASIC entirely remove the threat of additional regulation if overall standards fall, and unjustifiable outcomes ensue.
ASIC’s report is available in full on its website HERE.
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