Treasurer Josh Frydenberg to crack down on proxy activists

Josh Frydenberg will target corporate activism through new regulations.

Treasurer Josh Frydenberg. Picture: Philip Gostelow

Josh Frydenberg will target corporate activism through new regulations to crack down on the country’s big four proxy advisers and superannuation funds — which own about 20 per cent of the Australian Stock Exchange — forcing them to provide evidence backing up contentious votes and giving companies prior warning.

The clampdown comes amid a rise in corporate activism, with large companies forced to shift on issues such as climate change as institutional shareholders exert greater influence in boardrooms.

Following similar reforms targeting proxy advisers in the US and Britain, the Treasurer has launched a one-month consultation process to finalise a regulatory framework that will inject greater transparency across the proxy advice sector.

Mr Frydenberg said the crackdown continued the government’s focus on supporting greater transparency for superannuation funds. “In Australia, the proxy advice market is dominated by just four firms that advise superannuation funds, which own about 20 per cent of the ASX, equivalent to $440bn,” the Treasurer said.

“These super funds often rely on proxy advice to make decisions on behalf of millions of Australians who have invested their savings in listed companies.

“Australians deserve to know the advice their superannuation funds are receiving is transparent, accurate and independent.”

There are only four proxy advisers operating in Australia, including the foreign-owned ISS Australia and CGI Glass Lewis, and the local Ownership Matters and Australian Council of Superannuation Investors, or ACSI.

Under the regime, proxy advisers — which provide reports to ­institutional shareholders with research on ASX-listed companies and make voting recommendations — would need to obtain an Australian Financial Services ­Licence, which would hold them to the same standards of efficiency and transparency imposed on other players in capital markets.

The proposed regime would ­require proxy advisers to notify their clients about the targeted company’s response and ensure they are independent from superannuation fund clients.

Super funds would need to “make publicly available more detailed information on their voting record, including whether a vote was consistent with any proxy advice received, and outline how they exercise independent judgment in the determination of their voting positions”.

Proxy advisers frequently make waves in corporate Australia. Financial services giant AMP recently axed a proposal to give outgoing chief executive Francesco De Ferrari $2.2m in performance rights, after Ownership Matters and CGI Glass Lewis urged investors to vote against it.

Ownership Matters was also the author of a widely publicised report that showed one fifth of JobKeeper payments made to major listed companies in the second half of 2020 went to firms that grew their profits during the crisis.

Mr Frydenberg, who has already legislated superannuation reforms that consolidate 3.3 million unintended multiple accounts valued at $4.3bn, ban exit fees and cap fees on low balance accounts, said the next step was ensuring proxy advisers were held accountable for their recommendations.

“Given the influential role of proxy advisers in corporate gov­ernance in Australia and the high degree of institutional share ownership, the Morrison government is committed to increasing the transparency and accountability of proxy advice,” he said.

A consultation paper prepared by Treasury said proxy advisers operating in Australia currently provided advice without requiring “specific licensing, despite the ­influence on the conduct” of businesses operating in the country.

“Making assessments on issues such as the appropriateness of a proposed executive remuneration package … requires a high degree of expertise to assess,” the Treasury paper said.

“The investors that proxy advisers sell their service to are, for the most part, seeking financial ­returns for their members and ­clients, especially superannuation funds that are required to act in the best interests of their members.”