Strike two: Senate sinks three-day-old shareholder advice reforms

Sweeping regulatory reform to the shareholder proxy advice industry has been overturned in the Senate just three days after coming into effect.

The pressure on Josh Frydenberg’s reforms to the proxy advice industry proved too much, and the regulatory changes were sunk in the Senate. Picture: David Crosling

Sweeping regulatory reform to the shareholder proxy advice industry has been overturned in the Senate just three days after coming into effect.

In a blow to the Morrison government on the same day it was forced to abandon its religious discrimination bill, the regulatory changes, introduced into parliament on February 7, were disallowed after independent senators, including Rex Patrick and Jacqui Lambie, joined One Nation and the Labor Party to vote in favour of a motion to disallow the new rules.

Four proxy advice firms – the Australian Council of Superannuation Investors, CGI Glass Lewis, Ownership Matters and ISS – wield significant influence through their recommendations to shareholders, including superannuation funds and other large institutional investors, on how to vote on issues such as executive pay, the appointment of directors, and on environmental and social matters.

Josh Frydenberg’s regulatory reforms – which The Australian understands will not be revived – were supported by big business, but opposed by unions, the Labor Party, and the proxy advice and superannuation industries.

The new rules required proxy advisers to get an Australian ­Financial Services Licence, and, from Monday, to provide their ­advice to companies on the same day it was provided to clients. The new regulations also required proxy advisers to be independent of their clients – a move clearly aimed at the industry super-owned Australian Council of Superannuation Investors – and that super funds provide more ­detail on their voting records.

But in a vote the changes failed to get the support of the crossbench on Thursday morning.

The Treasurer said “the Labor Party has sided with the Greens again to roll back reforms ­designed to improve the accountability and transparency of the proxy advice and superannuation sectors”.

“They opposed the most significant changes to super in 30 years, which are expected to ­deliver around $18bn in savings for members. They opposed the need for litigation funders to hold an Australian Financial Services Licence, which is now law. And now they have voted against superannuation funds disclosing to their members how they voted on company resolutions,” Mr Frydenberg said. “Our reforms were designed to strengthen the integrity of our corporate governance regime.”

Senator Patrick said “this was bad law, crafted to please Josh Frydenberg’s big business mates and political donors”. He said the demise of the new regime happened in “world record” time, and that it was just “one big thought bubble from the Treasurer”.

Australian Council of Superannuation Investors chief executive Louise Davidson said she was pleased with Thursday’s vote.

“The regulations were rushed through without parliamentary scrutiny and with no justification, rationale or harm identified,” Ms Davidson said. “Proxy advisers faced more onerous red tape and fines of up to $11m for small ­administrative errors, and unprecedented rules regulating ownership of advisers.”

But Australian Institute of Company Directors managing ­director Angus Armours said he was “disappointed that influential players in Australia’s financial markets will continue to benefit from a 20-year-old exemption from AFSL licensing”.