Hoda Nahlous and Dillon Fuzi outline ASIC's recent recommendations in relation to proxy adviser engagement practices.
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.
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.
In ASIC’s roundtable discussion, some concern was expressed by relevant industry groups about the engagement practices of proxy advisers, including that proxy advisers:
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.
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:
For companies, ASIC has recommended that they:
© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Liability limited by a scheme approved under Professional Standards Legislation.
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.