GILES RAFFERTY, Corporate Communications and Media Advisor

AGM season may seem a long way off for many ASX listed companies but June and July are prime time for engaging with Proxy Advisors in advance of the peak months of AGM season, between October and November.

Proxy advisors play a vital role in helping inform investment managers and asset owners on the resolutions relating to the companies in which they are invested and offering an opinion on how to vote.

Arranging a meeting with a Proxy Advisor firm can allow senior executives the chance to:

• • discuss how their governance practices are evolving
  • highlight unique issues that may impact on their governance or remuneration practices
  • gain a better understanding of how the Proxy Advisor firm views the governance requirements for listed companies.

“Often we need to agree to disagree.”
Simon Connal Founder, Ownership matters

We asked the four proxy adviser firms operating in Australia – ISS Australia, CGI Glass Lewis, Ownership Matter and the Australian Council of Superannuation Investors (ACSI) – for their thoughts on the kind of mistakes companies make when engaging with Proxy Advisors and how they could improve engagement.

What to do and what not to do

Both ACSI and ISS Australia highlighted the importance of not only engaging with Proxy Advisors but also directly with investors. Vas Kolesnikoff, Head of Australia & New Zealand Research at ISS, noted the ASX Corporate Governance Principles and Recommendations require companies to have an appropriate stakeholder engagement function. “A lot of them just say, “Oh we’ll just pick the top 10 investors and will talk to them”, but, you know, what about the rest of them?” he said.

Louise Davidson, CEO at ACSI suggested companies that receive (activist) shareholder resolutions should proactively engage with those filing the resolutions, as well as their shareholders, rather than ignoring them. “We have seen this happen on occasions in the past”, she commented, adding that “those that do engage are more likely to make in-roads into managing the issues, which may mean there is no need for investors to support the resolutions.”

Ownership Matters and CGI Glass Lewis said a mistake some companies make is to assume that engaging with a proxy advisor firm will result in that firm agreeing with the company or giving it a ‘clean bill of health’. No matter how positive a meeting between a company and a proxy advisor firm, it will be the governance disclosures and policies revealed in the company’s annual report and market announcements that underpin a proxy advisor’s view of a company.

Hot topic issues

A perennial area of focus for Proxy Advisors is remuneration, with CGI Glass Lewis looking for remuneration structures that support greater alignment between company executives and shareholders, while also calling for remuneration consequences in response to fatalities and safety issues.

Another current focus is how Companies are responding to ongoing underperformance and in particular what CEO and board succession planning looks like. CGI Glass Lewis calls out fund manager activism in response to poor performance on capital management, with a particular focus on demonstrating how capital allocation supports better ESG outcomes.

“Executive alignment with shareholders or ‘’skin in the game’’, and remuneration structures that foster and support this alignment.”

Philip Foo VP, APAC Research and Engagement, CGI Glass Lewis

Ownership Matters is closely scrutinising the impact of foreign strategic investors on control arrangements in ASX companies and would also like to see ASX companies’ ability to issue an unlimited number of shares as consideration for a reverse takeover curtailed.

When assessing capital raisings Ownership Matters wants to see shareholders pre-emptive rights respected and they will be monitoring the fairness, transparency and efficiency of any raise and looking for any fees charged to be commensurate with the risk taken by advisers and underwriters.

Maintaining the momentum behind the steady increase in the representation of women on Company Boards remains a key focus for all proxy advisers, with any perception amongst shareholders of a lack of gender diversity at Board level likely to leave a Company open to challenge and protest votes.

The integrity of the proxy voting regime is also a key focus at Ownership Matters, which plans to measure the impact of securities lending on votes cast at AGMs.

Where to begin?

All four proxy advisory firms are happy to meet with companies, but it is worth noting not every advisory firm covers every company. In reality proxy advisors write reports on the companies that their clients, investment managers and asset owners, ask them to. The good news is proxy firms are happy to say whether they do or don’t report on a company, which is a good place to start any engagement with them.

They also, each have a lot of information on their firms’ policies and guidelines available through their websites.

• • ISS Australia – FAQs: Engagement on proxy research
  • CGI Glass Lewis – Guidelines: Australia (2023 guidelines remain current)
  • Ownership Matters – What’s on our radar and Voting guidelines
  • ACSI – Governance guidelines

“I would urge companies to look at our policies to understand why we say what we say.”
Vas Kolesnikoff, Head of Australia & New Zealand Research, ISS

It is worth reviewing the on line material provided by proxy advisor firms prior to seeking a meeting. It is possible interrogating a proxy advisor’s website will give a company a good understanding of how and why that Advisor has formed a certain view, which may make a face-to-face meeting redundant.

One thing all the Proxy Advisory firms appear to agree on is that listed companies should focus on building effective IR functions that support and maintain constant, appropriate and effective communication with their shareholders as a priority.