Submission to Corporations and Markets Advisory Committee: The AGM and shareholder engagement

December 2012

Mr John Kluver
Executive Director
Corporations and Markets Advisory Committee
By email: john.kluver@camac.gov.au
Cc: camac@camac.gov.au

Dear Mr Kluver

Submission to Corporations and Markets Advisory Committee: The AGM and shareholder engagement

Thank you for the opportunity to submit our views on the AGM and shareholder engagement to the Corporations and Markets Advisory Committee.

Regnan is owned by and run for institutional investors with significant shareholdings in Australian listed markets, as well as other asset classes. Our submission reflects our experience in researching and engaging with Australian listed companies on behalf of these investors. We respond only to those parts of the discussion paper for which we are in a position to have formed a view.

Guidance for companies about shareholder engagement
Regnan has observed an increase in the quantity and quality of shareholder engagement by many S&P/ASX200 companies over the decade in which we have been undertaking such engagement.

However while we do not favour additional prescription, we recognise that smaller companies and those with less well established investor relations /shareholder engagement programs may derive benefit from descriptive guidance in this area.

Particularly helpful for this audience would be descriptive guidance that addressed common misperceptions, by:

  • Emphasising the benefits to the company of engagement that involves two-way dialogue exchange rather than a one-way flow of information from the company to its shareholders;
  • Forestalling any misapprehension that shareholders necessarily desire more reporting, or more polished presentation of information;
  • Explaining the varying objectives of distinct classes of institutional investors (asset owner versus asset manager, long term versus short term, active versus passive etc);
  • And in light of the above points, communicating the value of having the relevant (generally non-executive) directors participate directly in engagement activity.

We note examples of such guidance that is readily available and note also that consideration of further developments will be the subject of a separate review by the ASX Corporate Governance Council for its 2013 review.

Should at least some institutional investors be encouraged or required to report on the nature and level of engagement with the companies in which they invest, in the manner provided for in the UK Stewardship Code or otherwise?

Regnan believes it is beneficial for institutional investors to demonstrate accountability for their engagement with companies, and we note a number of existing frameworks that encourage both stewardship activity, (including engagement) and reporting on this activity.

More detailed analysis is required ahead of determining whether more is needed. This should include mapping to establish whether any legitimate groups are under-served by the content or coverage of these frameworks, and analysis of formal participation and (separately) de facto compliance with the content by market participants.

Could greater use be made of technology to promote shareholder engagement outside the AGM and, if so, how?
Institutions, their representatives and advisers (eg asset owners, larger fund managers, proxy advisers, investor groups such as Regnan and ACSI) tend to be better served by corporate engagement programs than those representing smaller parcels of shares. In practice, this means that engagement between a company and such shareholders is characterised primarily by one-way rather than two-way communication. Even those shareholders able to attend the AGM in person may not have the opportunity during proceedings to put their questions or views from the floor. Some companies solicit questions in advance of AGMs however there is currently limited formal accountability for whether these are prioritised.

Regnan views these circumstances as a lost opportunity for demonstrating accountability, furthering shareholder engagement and promoting a more informed market. This is particularly unfortunate given the availability of technology-based alternatives that would demonstrate more systematic engagement with shareholder questions and concerns – including at times other than the AGM. Examples could include web-based forums for shareholders to submit, review and vote on others’ questions to the company – with companies responding to a limited number of those most highly prioritised by the shareholders as a group.

Should there be additional scope for non-binding votes?

Regnan is in favour of additional scope for shareholder resolutions and notes the effectiveness of the non-binding vote on remuneration in promoting dialogue between companies and their investors on issues of interest and concern. We also note that extraordinary general meetings have been called by shareholders in recent years to circumvent (or pre-empt) companies’ refusal of ordinary shareholder resolutions. Such EGMs can be costly to the company and its wider shareholders and a distraction for all parties. Regnan believes that the availability of ordinary resolutions would have reduced the instances in which the 100 member rule was used to requisition EGMs.

However Regnan is also mindful of limits on the proper role of shareholders in decision-making for investee businesses. Additional scope for shareholder resolutions and voting should be framed in a manner that does not promote proliferation of resolutions on business management or operational matters.

It may be that additional scope should encompass both binding and non-binding votes to facilitate clarity about director responsibilities. For example, shareholder resolutions in other jurisdictions commonly seek a report from the board on matters of interest to the proposing shareholders. Where directors do not believe it is in the interests of the company to provide these disclosures and would consequently be conflicted if not bound to do so by the vote, it may be preferable that the vote be binding (a situation similar to the obligation on Australian-domiciled companies to report on remuneration). On the other hand, any subsequent vote on the requisitioned report might necessarily be limited to a non-binding vote (again, paralleling the non-binding vote on the remuneration report).

We see it as necessary to consult further on the mechanisms by which to a sensible balance could be achieved within Australian business context.

The Annual Report

Regnan has provided detailed comment on Annual Reporting in its recent submission to ASIC’s consultation: Effective Disclosure in an Operating and Financial Review. This is attached as an appendix in the following pages.

Yours sincerely,

Amanda Wilson
Managing Director

 

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