Royal commission fuelled investor discontent last AGM season: ASIC

The bank inquiry helped fuel a spike in first strikes at the most recent AGM season, according to a new ASIC review.

NAB CEO Andrew Thorburn leaves the bank’s AGM at the Melbourne Convention Centre in December. Picture: David Geraghty

The royal commission into financial services fuelled a jump in protest votes against executive pay, and not just for banks, according to a new report by the corporate regulator that says shareholders are increasingly focused on board accountability.

The Australian Securities and Investments Commission today published its overview of the 2018 annual general meeting season for the ASX 200 listed companies.

ASIC highlighted that the 2018 AGM season was conducted in unique circumstances as the royal commission into financial services drew attention to particular companies and directors and heightened shareholder focus on matters such as social licence to operate and community expectations.

“The royal commission, including the interim report released on 28 September 2018, cast a long shadow over the 2018 AGM season,” ASIC said in the report.

“This was particularly so for companies and directors directly involved in the royal commission, but also more generally. It was an impetus for heightened shareholder focus on matters such as social licence to operate and community expectations.”

The regulator said its observations from the AGMs confirmed a trend from the 2017 season where shareholder engagement remained significant, with the annual meeting used as an avenue of direct engagement with company boards.

Key findings included an emerging theme of board accountability.

“Shareholders have used their votes on the remuneration report to demonstrate discontent with boards more broadly rather than just on executive remuneration,” the report said.

ASIC also outlined that several chairmen and CEOs used their opening addresses at AGMs to acknowledge failings or mistakes made by the company and commitment to improving.

The annual report — the second one produced by ASIC — showed that votes cast in favour of a remuneration report fell significantly in the banking sector, from around 96 per cent in 2017 to 66 per cent in the most recent AGM season.

“This result appears to be directly related to the conduct-related concerns highlighted by the royal commission and, in particular, those companies’ failure to account for this through their remuneration practices,” ASIC said.

There were 12 remuneration report strikes — when more than 25 per cent of shareholders vote against the remuneration report — recorded across the board in the 2018 AGM season. That was a jump on the five recorded in 2017.

The report added that director elections and re-elections persisted as an area where shareholders voiced discontent by protest votes, with some material “against” votes coinciding with high “against” votes on remuneration.

ASIC also said that there were a steady number of companies that came close to receiving a strike. After two strikes, shareholders can vote to spill a board.

“Of the eight companies that were close to a first strike in 2017, four went on to receive a first strike in 2018,” ASIC said.

“This is perhaps indicative that, for those companies, shareholder concerns leading to the close call in 2017 were not addressed in 2018. On the other hand, none of the companies that received a first strike in 2017, and were still in the ASX200 in 2018, went on to receive a second strike in 2018.”

The regulator also highlighted in its report that climate change risk and sustainability were the most frequently raised environmental, social and governance (ESG) issue.

ASIC said its observations from attending AGMs was that shareholders sought to understand the steps boards were taking to identify, address and mitigate climate related risks to the company’s business, as well as advocating for boards to take action. That action included commitment to certain emissions targets or limiting business with non-renewable energy companies.

“Other ESG issues of concern to shareholders included asylum seekers’ rights, board diversity, public health and welfare concerns relating to business activities and labour and employment issues,” ASIC said.

It also pointed out that there was an overall improvement on gender diversity, with women accounting for 29 per cent of board members on ASX200 boards, up from 25 per cent in 2017. The regulator also noted that 10 companies from the 2018 AGM season had 50 per cent or more women on their boards.

A note of concern in the ASIC report was the fact that 11 companies in the ASX 200 continued to decide resolutions by a show of hands rather than by conducting a poll.

The regulator said that while this was down from the 2017 AGM season, it remained concerned that this practice was still adopted in a number of ASX 200 listed companies.