A Draft “Code for Improving Engagement between Listed Entities and Proxy Advisers” was released today by the Australasian Investor Relations Association (AIRA) in an initiative aimed at fostering relations in the long term and to head off regulation. This comes ahead of a round table called for later this week by the Australian Securities and Investments Commission (ASIC) to discuss possible solutions.
AIRA’s Chief Executive, Mr Ian Matheson, said today: “Our members, who are leading Australian and New Zealand listed companies, have devised a balanced set of principles that we believe will foster effective engagement between them and proxy advisory firms.”
“This Code of Engagement is intended to be a voluntary framework. It outlines the way in which proxy firms should engage with listed companies, and it provides a mechanism for giving them feedback from listed companies. It should also help to identify any systemic issues that may arise from time-to-time.”
ASIC has called industry bodies together on May 11 to discuss the issues including looking at approaches currently being considered overseas like the voluntary one recently put in place in the UK or a regulatory model like that in the US.
Ahead of that roundtable, Mr Matheson said that AIRA was seeking backing for its initiative from other stakeholders’ including proxy advisers and business and investor groups.
The proposed Code is based on the principle that shareholder voting recommendations be clear, correct and conflict free. Its adoption would signal willingness by listed companies and proxy advisers to better engage with each other. It would also be of benefit to institutional investors, because they should receive more consistency on the recommendations they use to base their voting at annual general meetings.
The Code covers five principles. They are that proxy research should be factually accurate and listed companies should have an opportunity to correct factual errors; proxy firms should be adequately resourced and staffed; they should be provided with appropriate feedback including industry bench-marking; there should be a system for managing conflicts of interest; and proxy firms should report on compliance with the Code on a regular basis.
“One of the significant problems for proxy firms is that, just like many other financial intermediaries, they are suffering a financial squeeze,” Mr Matheson said. “A strong push by investors into cheaper, passive managed funds means that some asset managers are paying less for services such as proxy voting advice. That impacts on the quality of work that advisers provide.
“At the same time, institutions, asset managers and asset owners rely on those recommendations and often follow their advice on an ‘exceptions only’ basis. That makes them highly influential.”
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The Australasian Investor Relations Association (AIRA) was established in 2001 to advance the awareness of and best practice in investor relations in Australia and New Zealand and thereby improve the relationship between listed entities and the investment community. The Association's 160 corporate members now represent over A$1.2 trillion of market capitalisation, over 80% of the total market capitalisation of companies listed on ASX.