A group representing some of the nation’s biggest superannuation funds says shareholders need greater powers to ensure their concerns are heard at company AGMs – including on environmental and social issues.
The n Council of Superannuation Investors, which represents super funds and institutions managing $1.6 trillion in assets, wants shareholders to have the ability to put non-binding, advisory resolutions on the agendas of company AGMs – a move it says would allow shareholders to “escalate” environmental, social or governance (ESG) issues when companies had otherwise failed to act on investor concerns.
It says the system governing so-called “shareholder resolutions” in is flawed, restricts shareholder rights and lags behind the regimes in Britain and the US.
Shareholder resolutions are in the spotlight this AGM season, with non-government-organisations (NGOs) like Market Forces and the Australasian Centre for Corporate Responsibility lodging a series of social or environmental-related items at companies including Santos, Woolworths and BHP.
The bulk of resolutions put to shareholders at company meetings are proposed and endorsed by boards, but groups of 100 or more shareholders – or shareholders owning at least 5 per cent of the company – can put forward their own resolutions.
But such resolutions must not venture into areas that involve management of the company, regarded as the domain of boards, not shareholders.
To get around this, the resolutions often first propose a change to companies’ constitutions – requiring a near-impossible hurdle of 75 per cent shareholder approval. Such resolutions have proved unpopular with many investors who are reluctant to vote in favour of constitutional change, even if they support the subject of the resolution itself.
Under ACSI’s proposed reform, a non-binding, advisory resolution could be passed with just 50 per cent shareholder support, but would still require the backing of at least 100 or more shareholders – or shareholders owning at least 5 per cent of the company’s issued capital – before it could be put to other investors.
n shareholders already have the power to lodge a protest vote on director and executive pay through the two-strikes policy, which triggers a resolution on a board spill if more than 25 per cent of shareholders vote against a company’s remuneration report two years in a row.
Shareholders in Britain and the US have broader powers to propose non-binding resolutions, although in the US, at the company’s request, they can be subject to a lengthy “informal review” by the Securities and Exchange Commission. In the UK, courts have the power to block resolutions deemed “vexatious, frivolous or defamatory”. Active ownership
Shareholder resolutions are usually opposed by companies’ boards, and attract very small shareholder votes in their favour.
But they also attract attention to the issue at hand, for example with the ACCR’s resolution regarding BHP’s membership of the Minerals Council.
Some institutional investors say they find the resolutions helpful, because they make it easier to discuss ESG issues with company boards. But some directors argue that they can divert board resources, ignore efforts companies have already made on ESG issues and can push agendas that are – as stated by several companies in response to the resolutions – not in the interests of shareholders as a whole.
As part of its research, ACSI interviewed 20 big investors from and overseas, and studied the regimes governing shareholder resolutions in Britain and the US, where resolutions are much more common.
ACSI chief executive Louise Davidson said there was “clear consensus” among investors of the need for reform, with the current system “[making] it very difficult to consider a resolution on its merits, because you are having to think about whether you want to change the constitution of the company to accommodate it.”
Ms Davidson said that – rather than investors considering such changes on a company-by-company basis – “it ought to be a market-wide reform”.
Currently, she said, shareholders left unhappy about certain issues were left with the “blunt instrument” of voting against the re-election of company directors, an action which many investors were reluctant to take – especially if they were otherwise happy with the direction of the company.
She said n shareholders needed a better way to express concerns about ESG issues.
After considering other options, ACSI recommended a non-binding vote because it was considered a “good fit” with ‘s corporate culture, where – unlike in the US – boards are more willing to discuss issues directly with investors.
A spokesman for financial services minister Kelly O’Dwyer said the government was aware of ACSI’s report and would consider its recommendations in due course. This would include “whether further legislative reform of the Corporations Act is warranted”.
“Ensuring that public companies are accountable to their shareholders is crucial, and shareholders play a critical role as a check on good governance,” he said. Proxy support
Brynn O’Brien, executive director of the ACCR, backed ACSI’s proposal. “This is a missing part of the corporate governance landscape in ,” she said.
ACSI’s plan also had the measured backing of at least two of the nation’s influential proxy advice groups, who guide institutional investors on how to vote at company meetings.
Ownership Matters principal Dean Paatsch said there was merit in “tweaking” the system to allow shareholder feedback on non-financial risks, given it was “very difficult” to support constitutional amendments.
“They can bind the board in perpetuity and create an avenue for future litigation,” he said.
But he cautioned that any changes to the current system should come with “some sensible rules around what resolutions can be put to shareholders”.
Daniel Smith, general manager at CGI Glass Lewis, said his firm supported non-binding resolutions in principle, but believed an independent third party – such as the n Securities and Investments Commission – should have the power to review resolutions.
“We are also supportive of giving shareholders the right to an annual non-binding vote on a sustainability report,” he said. “Such instruments could give shareholders additional meaningful tools of communication to boards, without going down the rabbit hole of attempting to direct the company.”
This year, CGI Glass Lewis recommended in support of Market Forces’ shareholder resolution at the Santos annual meeting, which called on the company to improve its disclosure of climate change risk. The resolution attracted 5.2 per cent of votes in favour.
The n Institute of Company Directors said it was still considering the report, but said it was a “thoughtful contribution” to the debate.
“Mechanisms that can enhance governance frameworks, without diverting corporate resources into self-interested causes, are worthy of discussion,” said AICD general manager advocacy Louise Petschler.
???Continue reading »