Australian Shareholders’ Association releases a revised policy paper

The Australian Shareholders Association (ASA) has released a policy paper setting the foundation for how they will vote their proxies on board governance and executive remuneration resolutions. The paper promotes a number of significant items which are a departure from past policy, a departure from other governance stakeholders, and/or a new area of emphasis for the ASA.

Key items of note are:

  • Allowing directors a 12 year tenure limit to be considered independent directors. This is significantly different from the ASX Governance Council’s draft new principles (with their nine years – see HERE) or ACSI’s new guidelines (with an enlightened case by case perspective – see HERE)
  • Improving disclosures regarding director appointment and, specifically, that the nomination committee should be able to demonstrate a transparent and independent process around the selection and appointment of new independent directors.
  • Actively opposing the election of a long-serving chairman (but not other non-executive directors) where they were considered responsible for decisions resulting in material investor losses. (Interestingly the ASA also indicated it would do this for chief executive officers too, although most CEOs appointed to the board as a director are exempt from the requirement to seek election.) They will also not support re-election of a remuneration committee chair if there are concerns with remuneration practices, or other NEDs if they are associated with two or more poorly performing companies. This intent to vote “no” for director re-election is a reflection of a trend in the UK, Canada, and the USA that has been gaining traction with Australian institutional investors.
  • Allowing full time executives to hold a single non-executive board seat elsewhere. This policy is relatively liberal compared to those of other governance stakeholders that do not support this.
  • The potential pay of chief executive offers should not exceed double that of the next highest paid executive. This policy has not had much traction with other stakeholder groups, but it has an underlying rationale that was first recognized by US investors some years ago in terms of organisational and governance risk. Where the CEO’s pay far exceeds this next highest paid executive, this could indicate an imperious CEO who “owns” the board, and effectively governs his/her own remuneration. It may be a sign that the board is not independent enough. It also signals that there is no likely internal successor.
  • Maintaining the ASA’s preference for relative total shareholder returns as a performance measure for long-term incentive schemes.

While it is positive to see that many points appear more finely considered than in prior years, the ASA (along with several other governance stakeholders who release guidelines) has perhaps not timed it to achieve maximum impact. If the revised guidelines are to have more traction it would be better to release them well before boards consider new financial year policies and disclosures.

The discussion paper can be found HERE.

© Guerdon Associates 2024
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