New engagement guidelines from Governance Institute of Australia

In a move that can only help, the Governance Institute of Australia (GIA, formerly Chartered Secretaries Australia) and Mr Sandy Easterbrook have combined to produce guidelines to assist ASX-listed companies and their institutional investors to engage more effectively in a bid to enhance long-term performance and corporate value.

“The Guidelines: Improving engagement between ASX-listed entities and their institutional investors” are intended to provide a best practice code that establishes clearer lines of communication, promotes greater transparency in governance-related decision-making and sets a course for a more productive relationship between the two groups.

One current obstacle to positive engagement is the complexity of the institutional investor chain, made up of super funds, fund managers and proxy advisers, which can make it difficult for companies to know who makes the real voting decisions and what factors they consider. To deal with this, the guidelines outline practical improvements in disclosure, including that institutional investors disclose on their websites who has voting power over what issues so companies can readily identify the correct party with whom to establish an engagement program.

It is also suggested that investors be upfront with their policies on proxy voting and the governance guidelines used to judge whether a company’s actions are appropriate. Investors have an obligation to let companies know in advance what their key concerns are.

The aim is to achieve greater transparency and a regular dialogue, including better stewardship of the shared investment and the long-term sustainability of the company – this should, in turn, support a stronger Australian economy.

GIA tips for good shareholder engagement include: For institutional investors:

  • Disclose if the superannuation fund or the fund manager is responsible for engagement and voting
  • Disclose who in your organisation is responsible for voting and engagement
  • Explain how you vote your stock
  • Explain your proxy voting and governance guidelines and how you apply them
  • Understand the companies in which you invest

For ASX-listed companies:

  • Explain who in your organisation is responsible for engagement and on what issues 
  • Agree responsibilities as between the board and management for engagement on environmental, social and governance issues
  • Understand your significant institutional investors at fund manager and superannuation fund level and their role in voting decisions
  • Understand the role of proxy advisers and other intermediaries and their influence on voting decisions

For both: 

  • Have a regular, meaningful and mutually beneficial engagement program
  • Ensure continuity of engagement so good interpersonal relationships develop between the right people
  • Time your engagement program to avoid peak periods such as the AGM season

The engagement guidelines have been issued in ‘exposure draft’ form, with feedback and submissions currently being sought for the purpose of preparing a ‘definitive’ set of guidelines that will be widely supported and adopted by both ASX-listed entities and institutional investors. Consultations close on 24 April 2014.

The exposure draft of the Guidelines and accompanying Background Paper are available at HERE.

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