SYDNEY (May 6, 2021) — The Australian Treasury has announced a public consultation seeking stakeholder feedback on “Greater transparency of proxy advice”. This includes questions on superannuation funds’ governance, independence, accountability and disclosures. Responses are due June 1, 2021, and comment is sought on five potential regulatory options. The initial two options relate to superannuation funds’ disclosure of trustee voting and demonstrating independence and appropriate governance with regard to the proxy advisers from which they receive advice. A further three options focus on proxy advisers’ operating models – the mandatory provision of proxy advisers’ reports to companies before distribution to subscribing investors, notification of company feedback in response to reports, and whether professional licensing, such as an Australian Financial Services License (AFSL), should be mandatory for proxy advisers.
Vas Kolesnikoff, Head of Australia & New Zealand Research at ISS said: “The consultation seems to be premised on a misguided notion that proxy advisers do not operate transparently or engage with companies. In that sense we believe the potential regulatory options outlined in the public consultation are a solution in search of a problem. ISS is an independent and transparent organisation which goes to great lengths to ensure the quality and accuracy of our proxy research reports and which already has meaningful engagement with the companies that are the subject of those reports. Asset owners and other institutional investors should have the fundamental right to choose proxy advisers, use independent research and implement voting policies appropriate to their individual stewardship needs without any limitations placed on them by the companies which they own and directors who they elect.”
The consultation’s suggestion that proxy advisers should be compelled to provide companies with a five day review and comment period prior to proxy advisers’ reports being made available to their paying clients would be an unwarranted and inappropriate intrusion into the independent research process. On a more practical note, such a requirement would be an inoperable impediment to timely and effective investor stewardship and informed voting decision-making. ISS has a long standing practice of giving companies access, without charge, to their final, published report. Companies already have ample opportunities to communicate with their shareholders, including to advocate against the recommendations put forth by any proxy advisory firm. And ISS remains committed to immediately correcting any factual error which may influence a voting recommendation.
“To be clear, a difference of opinion with directors on matters of corporate governance does not constitute a factual error,” said Kolesnikoff. “We firmly believe all institutional investors should have an unfettered right to receive independent advice on their portfolio companies, a practice that would be harmed should Treasury push through these potential proposals.”