Investment
Culture dominates shareholder engagement

As the Royal Commission sharpens its focus on accountability and corporate culture, an institutional investor says these two issues will now shape conversations with boards more than ever.

SSGA senior managing director Susan Darroch said the significant role boards play in creating good corporate culture is often "underestimated and ignored" until bad news about the organisation hits the headlines.

While there is nothing new about this, Darroch flagged that SSGA will continue to firmly urge the 12,000 or so companies it invests in to ensure environmental, social and governance considerations are high on the board's agenda.

Darroch told a recent Australian Institute of Superannuation Trustees thought leadership event that corporate culture is a persistent theme in these conversations.

The "root cause of high impact events" that occurs in a company can be traced back to poor corporate culture, she said.

"Most directors recognise the importance of corporate culture generally but not all are able to describe the unique culture of their company.

"Also, few directors can explain what changes they'd like to see let alone a strategy to achieve those changes," she said.

Another hot topic is executive remuneration.

Some Australian companies have moved away from the traditional long-term performance targets to a single plan that includes problematic retesting provisions, she said.

This could lead to a misalignment between pay and performance that "encourage risky decision making" in return for high payoffs to meet aggressive targets over a short term.

In 2017, Darroch said SSGA engaged with 35 public companies on executive compensation in Australia and was successful in removing retesting provisions for BlueScope, James Hardie and Woodside Petroleum.

SSGA's stance is not to remove bonuses entirely but to make sure remuneration is linked to long-term strategies, she said.

SSGA invests in thousands of companies globally, Darroch said, it doesn't take a deep dive into every single one of them, rather aims to ask boards the right questions.

At Australian Ethical, head of ethics research Stuart Palmer says the organisation looks for opportunities to exercise a positive influence - even if it doesn't invest directly in the companies.

Australian Ethical, which operates a super fund and managed funds, doesn't invest directly in Woolworths for example.

Palmer says Australian Ethical, via its Advocacy Fund, holds nominal shares in Woolworths that allows it to vote at its AGM.

While Australian Ethical doesn't regularly engage with Woolworths, it recently voted in favour of the Australasian Centre for Corporate Responsibility's (ACCR) shareholder resolution.

Palmer said this called for stricter reporting on labour conditions and for the supermarket to involve the National Union of Workers in workplace rights, education, and grievance resolution procedures.

Read more: SSGAAustralian EthicalWoolworthsRoyal CommissionAustralasian Centre for Corporate ResponsibilityAustralian Institute of Superannuation TrusteesBlueScopeJames HardieNational Union of WorkersStuart PalmerSusan DarrochWoodside Petroleum
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