Speaker 1:        Hello, and welcome to the Guerdon Associates Podcast.

Speaker 2:        Thanks for having me. It is great to be here with you today.

Speaker 1:        We really appreciate you tuning in. This episode examines recent patterns in shareholder voting, exploring how outcomes regarding remuneration and director elections evolved between 2020 and 2025. We explore the procedural steps boards take before and after annual general meetings alongside the financial returns associated with those events. Finally, we review shifts in the regulatory environment and technological tools shaping institutional investor decisions.

Speaker 2:        Right. So we’re looking at everything from the statistical fallout of those votes to the internal board responses, all the way to shifts happening with proxy advisors.

Speaker 1:        Exactly. So beginning with our first story, we are looking at remuneration strikes. And just a quick note for you upfront, this information provides an overview of last year’s outcomes, and Guerdon Associates will observe what happens in the 2026 season over the coming months.

Speaker 2:        Yeah, that is an important context to keep in mind.

Speaker 1:        So according to research published by Guerdon Associates in March 2026, the volume of votes cast against remuneration reports shifted. This is within the scope of the ASX 300.

Speaker 2:        Right. In 2025, 31 strikes were observed in the ASX 300.

Speaker 1:        And that count moved to 33 when including foreign incorporated companies.

Speaker 2:        Correct. And looking at the percentages, the median vote against remuneration reports moved to 2.9% in 2025.

Speaker 1:        Okay.

Speaker 2:        And that compares to 4.3% in 2024.

Speaker 1:        But the average vote against was recorded at 10.3% in 2025, from 11.2% in 2024.

Speaker 2:        Right. So both the median and average changed.

Speaker 1:        And breaking it down by sectors, information technology, industrials, and materials recorded five strikes each.

Speaker 2:        Yeah, five each.

Speaker 1:        Think of shareholder voting like a thermostat. The frequency of the cooling system turning on changed and the temperature setting of those specific adjustments also shifted.

Speaker 2:        That is a helpful way to picture it.

Speaker 1:        But I do have a question. Could you outline the specific financial metrics such as return on equity and total shareholder return that correlate with these voting outcomes?

Speaker 2:        Absolutely. The analysis isolated specific metrics. For instance, companies in the bottom 50% of one year total shareholder return or TSR observed 22 strikes.

Speaker 1:        Wow, okay.

Speaker 2:        And in contrast, the top 50% observed nine strikes.

Speaker 1:        Got it. And what about return on equity?

Speaker 2:        Well, companies with a negative return on equity recorded a 13.3% median vote against, while companies with a positive ROE recorded 2.5%.

Speaker 1:        Okay. So, regarding external proxy advisor recommendations, a Glass Lewis analysis again, ASX 300 scope, showed the average vote against among companies receiving a strike moved to 47% from 42%.

Speaker 2:        Yes. And 39% of strikes were repeat strikes, which moved from 33% in 2024.

Speaker 1:        Right. And support for board spill resolutions was recorded at 4.3%.

Speaker 2:        Exactly.

Speaker 1:        So to summarise the segment, the frequency of strikes in the ASX 300 changed in 2025 alongside adjustments in average against votes and correlations with specific financial metrics.

Speaker 2:        And the key takeaway for the board director here is that voting outcomes on remuneration reports correlate with one year total shareholder return and return on equity.

Speaker 1:        Moving on to our next story, we are looking at the period after a strike, and we must clearly state that this information does not provide any investing advice.

Speaker 2:        Right. No investing advice. According to an article published by Guerdon Associates in October 2023, a review of the ASX 300 was conducted.

Speaker 1:        And this reviewed the total shareholder return performance for 49 companies receiving a strike between FY 2020 and FY 2022.

Speaker 2:        Yes. And nine of those received multiple strikes.

Speaker 1:        So the TSR was calculated for 6- and 12-month holding periods after the AGM date.

Speaker 2:        That is right. And it was compared to the S&P/ASX 300 index and sector indices.

Speaker 1:        Okay. So, over a six-month holding period, average excess returns were 5% to 9% compared to the ASX 300 and 3% to 10% compared to sector indices.

Speaker 2:        And this is key. The median excess return was negative in each year.

Speaker 1:        And for a 12-month holding period, both the average and the median excess returns were negative.

Speaker 2:        Correct.

Speaker 1:        It is akin to planting seeds in winter. A few might sprout early and skew the average, but the median outcome is that most will remain dormant until conditions change.

Speaker 2:        That is an aft comparison.

Speaker 1:        So why would a strategy with a positive average return over six months still be considered risky based on the median figures?

Speaker 2:        Well, the positive average return over the six-month period is driven by outliers. Because the median excess return was negative in each year, it indicates that more than half of the companies produced a negative excess return relative to the index.

Speaker 1:        Right. So the middle value was below zero.

Speaker 2:        Yes. And by the 12-month holding period, both the average and median excess returns were negative.

Speaker 1:        Got it. So to summarise, purchasing shares on the AGM date of companies receiving a strike produced negative median excess returns over 6 and 12 months, despite positive average excess returns over six months driven by outliers.

Speaker 2:        And the takeaway for the board director is that companies receiving a strike are statistically more likely to underperform the market over the following year.

Speaker 1:        Shifting gears to how companies process these outcomes, there is a day two post – AGM checklist for remuneration committee chairs dealing with high no votes.

Speaker 2:        Yes. As detailed by Guerdon Associates in October 2024.

Speaker 1:        Right. So step one is to get help by considering an independent advisor.

Speaker 2:        Then steps two and three involve taking action and confirming if the issue has substance.

Speaker 1:        And this involves comparing performance hurdles to guidance, verifying independent benchmarking.

Speaker 2:        Checking STI payouts alongside TSR metrics, and examining underlying earnings measures for exclusions like depreciation or amortisation.

Speaker 1:        Okay. But could you walk through the evaluation process when an undesirable non-financial outcome such as an undeclared office affair, a poor safety outcome, or a cybersecurity incident is revealed and confirmed by the board?

Speaker 2:        Well, the board must confirm the facts. Then they evaluate whether that specific event was factored into the remuneration outcomes.

Speaker 1:        Right.

Speaker 2:        If it was not, they evaluate whether to apply negative discretion to the payouts.

Speaker 1:        Then we have steps four and five, which require the board to omit the facts.

Speaker 2:        Yes. If the external assessment was incorrect, they apologise for unclear disclosures. If the assessment was correct, they admit the investor or proxy advisor was right.

Speaker 1:        And steps six and seven require the board to make a judgement and decide whether to change structures.

Speaker 2:        Because modifying executive pay requires recalculating measurement, vesting, taxation, accounting, and disclosure parameters.

Speaker 1:        It affects everything. So summarising this, the post – AGM checklist involves obtaining independent advice, confirming the facts of the objection, admitting those facts, and deciding whether to amend or maintain current structures.

Speaker 2:        And the takeaway for the board director is that modifying executive pay structures requires a recalculation of measurement, vesting, taxation, and accounting parameters.

Speaker 1:        Transitioning from post-meeting responses to proactive planning, boards also prepare for specific queries long before the AGM.

Speaker 2:        Yes. Based on a publication by Guerdon Associates from September 2025, there is a checklist of potential AGM questions regarding remuneration and governance.

Speaker 1:        Starting with questions on CEO pay. This includes justifications for CEO remuneration levels when EPS deteriorates.

Speaker 2:        And comparisons of CEO pay to average employee pay.

Speaker 1:        And disparities compared to direct reports pay. Wait. How might a director prepare for questions concerning the disparity between CEO pay and direct reports pay, specifically regarding how that disparity connects to succession risk?

Speaker 2:        Well, investors look at the internal pay ratios. If a CEO earns a multiple higher than the direct reports, investors question if there is an internal successor ready. So directors prepare by articulating the rationale behind the pay structure and demonstrating the succession framework.

Speaker 1:        Okay. And then questions on STIs cover the rationale for paying STIs for achieving budget or day-to-day roles and the weighting of STI versus LTI.

Speaker 2:        Right. And questions on LTI and board discretion involve explaining vesting outcomes when shareholder returns are below bank interest rates.

Speaker 1:        As well as the exclusion of charges from underlying EPS calculations and the application or absence of board discretion during material incidents that impact shareholder outcomes.

Speaker 2:        Exactly. Finally, questions on diversity and ESG focus on board diversity targets and actions addressing the average pay difference between male and female employees.

Speaker 1:        So in summary, AGM preparation involves reviewing potential questions on CEO pay metrics, incentive design, board discretion, and gender pay equity.

Speaker 2:        And the takeaway for the board director is that transparent disclosures regarding the rationale behind remuneration and governance decisions decrease the likelihood of these queries arising at the AGM.

Speaker 1:        Moving our focus from remuneration to the directors themselves, we are looking at director election votes. Just a reminder, this summarises 2025 results and Guerdon associates will monitor developments in the 2026 season over the coming months.

Speaker 2:        Yes. According to research released by Guerdon Associates in February 2026, we have ASX 300 director election votes over five years.

Speaker 1:        The median for vote was 98.9% in 2021, moved to 97.5% in 2023, and was recorded at 98.3% in 2025.

Speaker 2:        And instances of low votes, which are under 90% ‘For’, were recorded at 59 in 2021, 120 in 2023, and 85 in 2025.

Speaker 1:        And instances of super low votes under 75% ‘For’ trended upwards since 2021, peaking in 2025.

Speaker 2:        Right. We also looked at proxy advisors. Glass Lewis ‘Against’ recommendations remained steady starting at 6% in 2021.

Speaker 1:        While ISS ‘Against’ recommendations started at 5% in 2021 and moved upward through 2025.

Speaker 2:        And recurrent ‘Against’ recommendations for individual directors correlated with overboarding, lack of board diversity, and board independence concerns.

Speaker 1:        Think of voting trends like a tide. The overall water level remains high across the years, but the number of rocks exposed at low tide changed over the five-year period.

Speaker 2:        That is a good visual.

Speaker 1:        But could you explain the discrepancy between the trend of Glass Lewis recommendations versus ISS recommendations?

Speaker 2:        Well, the discrepancy where Glass Lewis remained steady at 6% and ISS moved upward correlates to the specific application of their policies regarding overboarding, diversity metrics and board independence classifications.

Speaker 1:        Okay. So they apply those classifications differently over time.

Speaker 2:        Yes.

Speaker 1:        So to summarise, over a five-year period in the ASX 300, median ‘For’ votes on director elections fluctuated while the volume of votes under 75% support trended upward alongside an increase in ISS against recommendations.

Speaker 2:        And the takeaway for the board director is that recurring recommendations against director elections correlate with overboarding, diversity metrics, and independence classifications.

Speaker 1:        Turning to the external forces shaping these voting recommendations, the proxy advisory landscape is experiencing some shifts.

Speaker 2:        Yes. As outlined by Guerdon Associates in March 2026. SEC rules in 2003 facilitated investment managers’ reliance on proxy advisors.

Speaker 1:        And then July 2020, SEC rules mandated proxy advisors to provide companies with voting recommendations simultaneously with investors and to disclose conflicts of interest.

Speaker 2:        Right. Though parts of these rules were repealed in 2022.

Speaker 1:        And then an executive order on December 11th, 2025, directed federal agencies to review proxy advisor rules and assess antitrust laws.

Speaker 2:        With a stated focus on investor returns over environmental, social, and governance agendas.

Speaker 1:        Simultaneously, corporations like JP Morgan Chase and Wells Fargo transitioned to AI-driven tools that scrape web disclosures, replacing external proxy advisors.

Speaker 2:        Although many institutional investors will still require outsourced advice due to safe harbour provisions.

Speaker 1:        Wait, how does the transition to AI screening systems change the specific way companies must format their remuneration and governance disclosures?

Speaker 2:        Well, remuneration and governance disclosures must be formatted for machine extraction. So instead of formatting solely for a human analyst, companies structure the information so that AI-driven tools can scrape the disclosures and isolate the metrics.

Speaker 1:        Okay. So summarising this, the proxy advisory landscape is experiencing regulatory reviews and technological shifts with some institutions replacing external firms with internal AI systems.

Speaker 2:        And the takeaway for the board director is that remuneration reports must be AI readable and year-round investor engagement remains a required fiduciary duty regardless of proxy advisor dynamics.

Speaker 1:        Which leaves us with a final though for you to mull over. If AI systems replace human proxy advisors by scraping disclosures for keywords and formatting, will the future of corporate governance depend more on algorithmic search engine optimisation than on the financial strategies executed by the board? It is something to consider as you navigate these changes. Thanks for joining our conversation today.