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ASIC reports on proxy adviser engagement practices

ASIC reports on proxy adviser engagement practices

Hoda Nahlous and Dillon Fuzi outline ASIC's recent recommendations in relation to proxy adviser engagement practices.


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The Australian Securities and Investments Commission (ASIC) has recently issued Report 578: ASIC review of proxy adviser engagement practices, which outlines ASIC’s key observations from its review of the engagement policies of the major proxy advisers in Australia, and certain related information.

Importantly, this report details ASIC’s recommendations for better engagement between companies and proxy advisers in order to improve the quality of information provided to shareholders in proxy adviser reports. 

This report comes at a timely period in advance of the 2018 annual general meeting (AGM) season.

The role of proxy advisers in corporate governance

Proxy advisers provide their clients, mostly institutional investors, with reports which set out recommendations for voting on company resolutions. In this regard, a proxy adviser assists shareholders in making voting decisions. The consensus is that shareholder participation, in particular, institutional shareholder engagement with voting, plays a pivotal role in a robust capital market. More generally, voting on resolutions is an important shareholder right that provides an effective forum for shareholders to express their views on important company matters – this forms a key part of the governance of the company.

Accordingly, recommendations in a proxy adviser report (whether for or against) should enable investors to make informed voting decisions. For this purpose, proxy adviser reports should be independent, well-informed and based on accurate information.

ASIC’s roundtable discussion: key themes

In ASIC’s roundtable discussion, some concern was expressed by relevant industry groups about the engagement practices of proxy advisers, including that proxy advisers:

  • appeared unwilling to engage;
  • provided very short response times to companies to clarify issues; and
  • failed to correct inaccuracies in a report.

However, in its report, ASIC notes that the policies of the four major proxy advisers, the subject of ASIC’s review, seemed to suggest otherwise. For instance, the policies encouraged engagement with, and independence from companies on which the proxy advisers provided recommendations, and willingness to receive feedback and correct errors.

Recommendations for better engagement

ASIC has made certain recommendations for each of the proxy advisers, and separately for companies, so as to encourage better engagement practices.

For proxy advisers, ASIC’s recommendations include that they:

  • clearly explain and make available policies and guidelines in relation to engagement and voting recommendations (ideally on the adviser’s websites), provide the company with sufficient time to respond where it has provided a company with a draft report for fact-checking purposes, and amend any substantive errors.
  • notify companies, after publication of the final report, of any ‘against’ recommendations and reasons for that recommendation so companies can understand the concerns and respond to shareholders accordingly.

For companies, ASIC has recommended that they:

  • engage proactively with proxy advisers outside of the peak periods as an extension of ongoing active engagement with shareholders.
  • ensure disclosure to the market is fulsome, clear and not overly complex – proxy advisers should be able to base their analysis on publicly available information.
  • continue to engage with shareholders regarding any voting decision.
  • in relation to ‘against’ recommendations, seek to understand the concerns underlying the recommendation by engaging with the proxy adviser so that the company may adequately respond to those concerns.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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