VICTORIA GEDDES, Executive Director
It’s AGM season and many companies will be talking with shareholders about the resolutions they are being asked to vote on.
Most fund managers engage proxy advisors to either help them manage the voting process or, more commonly, to access their recommendations as part of their own general due diligence. The proxy advisor has a very narrow window in which to review the resolutions being proposed by each company and to make voting recommendations. As a result, once the Notice of Meeting is issued proxy advisors as a rule will not engage with companies.
Companies can either engage with proxy advisors outside of this peak period or familiarise themselves with their voting guidelines which are available to download on their website. In this blog we look at three proxy advisors’ (CGI Glass Lewis, ISS Australia, ACSI) voting policies on virtual AGMs, board diversity and ESG.
Virtual Shareholder Meeting Provisions
Companies seeking to amend their constitution to enable virtual meetings to be held will need to be aware of concerns around how these might prevent full shareholder participation. Proxy advisors are generally supportive of constitutional amendments that allow for both in-person and virtual meetings or a hybrid model.
CGI – is supportive where the board has demonstrated that virtual meetings are not intended to replace in-person meetings where in-person meetings are practical and
– where the board is majority independent and free from other governance concerns, providing additional comfort in relying on the recommendation of the board
ISS – will support proposals which allow the company to convene hybrid shareholder meetings
ACSI – supports a hybrid model for AGMs, whereby participants have the option to attend in-person or virtually.
Board Diversity
Proxy advisor views on this matter are evolving and becoming more defined. There is general acceptance of 30% women on the board as the baseline for ASX300 companies. However, each emphasises that circumstances are assessed on a case-by-case basis, so it pays to read the detail in each of their policies.
CGI – may consider recommending shareholders vote against board members if a company board with six or more directors (including the MD) has less than two women directors. Similarly, if a company board has five directors, we expect to see at least one director that is a woman.
They may provide exceptions if the company demonstrates high representation of women in the senior management team or otherwise discloses a credible plan to address the lack of diversity on the board and in the senior management team in the near future.
ISS – will generally, vote against the chair of the nomination committee or chairman of the board (or other relevant directors on a case-by-case basis) if:
- the company is a large Australian listed entity and included in the S&P/ASX300 Index, and the board does not comprise at least 30 percent female representation
- for any company, there are no women on the board.
Exceptions will be given if a company:
- complied with the standard in the preceding year, and there is publicly available disclosure by the company of a search being undertaken and firm commitment to meet the gender diversity standard in the next year
- is a non-operating exploration or research & development entity, where it is typical to have small boards of three directors.
ACSI – will recommend their members vote against the boards of ASX300 companies with poor gender diversity, on a case-by-case basis. As a general rule, ACSI expects no gender to make up more than 70% of board positions and to provide a time frame within which they will achieve gender balance (40:40:20).
Their recommendations will focus on the individual directors most accountable for board succession and composition.
- For ASX300 boards with one or zero women directors, we will recommend a vote against at least one of the following (in descending order):
- the Chair of the board
- the Chair of the Nominations Committee
- a member of the Nominations Committee or
- the longest-serving director seeking re-election.
Where a company has zero women directors, ACSI may also make recommendations to vote against any newly appointed male directors. New entrants to the ASX300 will be given one year before the policy is applied. Voting recommendations will be combined with direct company engagement.
ESG Issues
Aside from ACSI which was established in 2001 to provide a voice on financially material ESG issues, proxy advisors are increasingly factoring ESG into their review process and updating their own guidelines on what is regarded as best practice.
CGI – believes that companies should ensure that boards maintain clear oversight of material risks to their operations, including those that are environmental and social in nature.
Beginning in 2023, Glass Lewis will generally recommend voting against the governance committee chair (or equivalent) of ASX 300 or NZX 50 companies that fail to provide explicit disclosure concerning the board’s role in overseeing material environmental and social issues.
With regards to including specific ESG measures in remuneration structures, CGI believes that these should be predicated on each company’s unique circumstances
ISS – where appropriate will report on the quality of a company’s disclosure of ESG risks and how it regards these risks.
ACSI – expects the board to maintain robust oversight of all ESG issues that materially affect the business. This includes ensuring that a company:
- integrates ESG risk into its risk frameworks.
- clearly identifies their key stakeholders and has a strategy for effective engagement.
- regularly assess the significance of current or emerging social and environmental issues relevant to the business.
- has effective oversight and management systems in place for environmental, social and governance issues.
ASX listed companies must disclose on an ‘if not, why not’ basis whether they have any material exposure to environmental or social risks and, if so, how they manage or intend to manage those risks.