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Proxy advisers under scrutiny

Proposed new legislation will see proxy advisers forced to be much more transparent on how and why they vote on matters put to shareholders.

The government is proposing to reform proxy voting by requiring superannuation funds to disclose more detailed information related to voting policies and/or by requiring proxy advisers to be meaningfully independent from super funds and advise only on an arm's length basis.

Treasury opened consultation on greater transparency for proxy advice reforms on 30 April 2021.

The consultation paper says the use of proxy advisers by institutional investors, such as super funds, to assist on voting decisions currently lacks transparency.

In Australia, the four main proxy advisers are Institutional Shareholder Services Australia, CGI Glass Lewis, Ownership Matters and the Australian Council of Superannuation Investors (ACSI).

ACSI said it is unclear what problems the proposed changes are seeking to address and that the reforms are unlikely to benefit any superfund members.

"No rationale has been provided for the notion that super funds should not have an association with proxy advisors and we are struggling to see the point of this part of the proposal. It would almost certainly have the impact of increasing cost and reducing efficiency of the exercise of ownership rights," ACSI chief executive Louise Davidson said.

"Producing research for a number of funds provides significant cost efficiencies for superfunds who are focused on delivering cost savings to ensure low member fees."

She added that it is already common practice for super funds to disclose voting activities.

Proxy advisers are required to hold Australian financial services licences for advice they provide to investors.

But Treasury is apparently concerned that they may be advising on issues they don't have the qualifications to assess.

"Proxy advisers also provide advice on other resolutions, such as remuneration reports, board appointments and governance arrangements, which are not covered by the AFSL regime as they do not fall within the meaning of a financial service," the consultation paper says.

Industry stakeholders have until June 1 to respond to the consultation paper.

Ownership Matters pointed out that several of the individuals in favour of the reforms may be biased on the issue.

Business Council Australia president Tim Reed put out a statement in favour of the reforms.

"The decisions made by proxy advisors have big implications on how businesses run and their ability to make returns for shareholders, so of course the system should be as transparent as possible," he said.

"When proxy advisors provide advice, companies should have a chance to respond, and all the facts should be on the table about how decisions that impact people's lives are made."

Ownership Matters recommended voting against bonus arrangements for Reed when he was chief executive of MYOB in 2018.

Former chief executive of explosives manufacturer Orica Alberto Calderon was quoted in the Australian Financial Review as being in favour of the reforms.

Ownership Matters published a report in 2021 as Calderon was departing Orica claiming that his pay package of $22.3 million over a six-year period when the company's share price fell was not in the best interests of shareholders.

Read more: ACSITreasuryOrica Alberto CalderonShareholder Services AustraliaTim ReedAustralian Financial ReviewBusiness Council AustraliaCGI Glass LewisLouise DavidsonMYOB