ISS recommends AGM strike vote against Westpac remuneration report

More trouble for Westpac as first proxy report ahead of its AGM recommends a vote against the bank’s remuneration report.

Westpac chairman Lindsay Maxsted at the company’s 2018 AGM. Picture: AAP

Instability continues to plague Westpac, with the first proxy advisory report ahead of the bank’s annual meeting recommending a vote against the remuneration report and the re-election of two directors.

Proxy advisory firm ISS is calling on fund managers to vote down Westpac’s pay report and to vote against the re-election of directors Nerida Caesar and Peter Marriott at the embattled bank’s AGM.

An ISS report obtained by The Australian says there are significant concerns about the bank’s remuneration structure, including a “misalignment” between pay and performance.

A “no” vote in excess of 25 per cent would mean a second strike for Westpac, following last year’s stunning 66 per cent vote against the bank’s pay framework.

READ MORE: ANZ says not aware of any pending Austrac action | No more scalps, says Maxsted | Future fund spill threat

ISS and other proxy advisory firms provide recommendations to fund managers and other investors, among other things, to help guide their voting decisions at annual general meetings.

The ISS commentary comes after Westpac’s board on Tuesday announced the exit of chief executive Brian Hartzer and the early departure of chairman Lindsay Maxsted, in response to shocking legal action lodged by the financial crimes regulator Austrac against the bank.

In light of the revelations, director Ewen Crouch decided not to stand for re-election at the AGM. The early retirement of Mr Maxsted and the decision by Mr Crouch not to seek re-election could be regarded as “reasonable steps” in a program of board renewal, ISS said, saying it would not recommend shareholders vote for a spill of the entire board.

Despite the actions by the board, the December 12 annual meeting looms as a hostile affair, with shareholders primed to vote against key resolutions and attack directors over the bank’s governance failures.

The Austrac action alleges 23 million breaches of the law, including facilitating payments linked to child exploitation and pornography.

The ISS report also calls on fund managers to vote in favour of new Westpac directors seeking election, Margaret Seale and Steven Harker. Yet ISS also raised concerns about Mr Harker’s independence, noting he had a significant related-party loan of $15m provided by Westpac.

As to Ms Caesar, and Mr Marriott, who is chairman of the Westpac audit committee, ISS said a “no” vote was “warranted given the material governance and risk failures identified at the RC (royal commission) and regulatory interventions, and allegations by Austrac regarding inadequate systems and statutory reporting of AML and suspicious transactions which are now the subject of civil penalty proceedings in the Federal Court”.

Westpac shares were trading 0.8 per cent lower on Wednesday in the early afternoon at $24.67. The stock remains 7 per cent down on the $26.55 it was changing hands at before the Austrac Federal Court action became public a week ago.

Ownership Matters, another proxy advisory firm, is yet to release its report on Westpac.

JPMorgan analysts cut their Westpac target price on Wednesday following the CEO exit and early departure of the chairman. They likened the situation to that at National Australia Bank, but said the instability could be even worse for Westpac.

Outgoing Westpac CEO Brian Hartzer at the 2018 AGM. Picture: AAP

“The current Westpac scenario is quite comparable to the situation National Australia Bank found itself in post the Kenneth Hayne royal commission, which led to the resignation of Andrew Thorburn as CEO and Ken Henry as chairman,” they said. “In the NAB case, a highly experienced board member in the form of Phil Chronican was able to step in as interim CEO and ultimately assume the chairman role. NAB CFO Gary Lennon also remained with the business and continues in this role.

“NAB’s transition enabled greater management and board continuity than is likely to be the case at Westpac, suggesting the risks of instability are greater than those faced by NAB.”

JPMorgan also warned that like at NAB, there was a risk that a new Westpac CEO rebased earnings expectations after starting in the top job.