30 April 2021

Proxy Advisors in a time of COVID

GILES RAFFERTY, Corporate Communication and Media Advisor


The Coronavirus pandemic continues to ravage the world, we canvassed the three main Proxy Advisory firms operating in Australia Ownership Matters, CGI Glass Lewis and ISS to get a sense of what impact corporate and government responses to the pandemic has had on governance and their voting recommendations.

Widening gap in voting on Rem Reports

“Support for management endorsed resolutions has been quite high over the last year and that’s an indication that boards, typically, have stepped up to the (COVID) challenge.”
Philip Foo V.P., APAC Research and Engagement, CGI Glass Lewis

One theme reported by the Proxy Advisory firms was a polarisation of voting behaviour around remuneration reports. It was not so much that there were more strikes against remuneration reports, as Simon Connal, founder of Ownership Matters, observed “Strikes within the ASX300 remained steady at around 25”, but more that when there was a protest vote it was larger and when the same was true for voting in favour of Remuneration Report.

Vas Kolesnikoff, Head of Australia & New Zealand Research, ISS noted “We are seeing higher votes against a rem report for problematic pay practices and misalignment with results, while higher votes for the report when boards have taken action to align pay and performance.

Picking up the stimulus tab

Philip Foo, V.P., APAC Research and Engagement, CGI Glass Lewis notes there have been a handful of large protest votes where executives appear to have accepted performance bonus linked to stimulus packages, saying “There’s been cases where a high STI outcome for an executive fails to match up to the fact that the company either A: let go of staff, B: reduced staff or C: has accepted JobKeeper.” Interestingly the challenge of how to pay for the COVID-19 stimulus package and if Board’s be considering repaying incentives such as JobKeeper was not front of mind at the Proxy Advisory firms.

Virtual AGMs

Philip Foo also called out the move to virtual AGM’s, in response to COVID, as presenting challenges. In particular, the virtual AGM format could restrict a shareholder’s opportunity to direct questions to any Board member who was present and create a circumstance where a Company may end up re-diverting the question to the Chair or the CEO. Philip said “You might have the same two people representing the company at the AGM rather than the full suite of Directors. That was one thing that shareholders were concerned about.”

COVID catch up incentives

Looking ahead to the 2021 voting season in Australia, Simon Connal is predicting investors will be on the lookout for COVID-19 catch-up incentives which could trigger adverse voting reactions. “I suspect [COVID-19 catch-up incentives] won’t be very well received and that may flow through to voting outcomes.

‘Say on climate’ resolutions

“It will be interesting to see, next year, what happens to those companies that don’t move fast enough or at all on climate reporting.”
Vas KolesnikoffHead of Australia & New Zealand Research, ISS

All three Proxy Advisory houses identified climate change as likely to be a hot ESG issue during voting season. In part because the ‘Say on climate’ campaign, which is pushing for companies to give shareholders an advisory vote on a company’s green transition planning, is gaining traction. Woodside, Santos and Rio Tinto have already given investors such a vote.

Simon Connal believes it is an area where investment managers will need to develop expertise, “Investment managers will likely need to upskill in this area in order to be able to form a view on climate reports when it comes to voting on those resolutions in 2022.”

Effective engagement

All three Proxy Advisory houses identified the timing of requests for meetings as an area where Companies could do better. For ISS and CGI Glass Lewis the advice is simple – ‘the earlier, the better’. Ownership Matters indicated a preference for scheduling meetings after the Notice of Meeting and other documents are released to allow for the most informed discussions.

There was also a consensus around companies making sure they have a clear set of issues they wish to discuss when they approach companies. Simon Connal’s advice is “Be upfront about issues that are being put to a shareholder vote – there is nothing more annoying than having gone through the engagement process only to find that a particular issue was not raised”. It is a sentiment echoed by Vas Kolesnikoff who has engaged with companies only to find out later that an important issue was not discussed, his advice is “Do not ignore a key governance issue in the expectation that we will miss something.”

“The devil is normally in the detail and we read the footnotes.”
Simon Connal Founder, Ownership Matters

Philip Foo notes that sometimes companies delivered their Results Presentation that focus on financial metrics at meetings with the team at CGI Glass Lewis. While he accepts this is useful context, Philip points out a proxy advisors focus is likely to be on governance issues. Philips recommendation is, “Trying to understand what the proxy advisors concerns are and differentiating proxy advisors from equity analysts would make the engagement a lot more useful for both parties.”

Companies need to be proactive

In Vas Kolesnikoff’s experience a common misunderstanding about how to engage with proxy advisors, particularly amongst new companies upon joining the ASX300, is that Proxy Advisors will put a call into the company to ask questions about them.  Vas points out that “We don’t work like that. We work off publically available information and the sheer number of engagements I’m looking to manage mean we do not reach out.” Instead, companies need to reach out to Proxy Advisors to clarify issues that are not already covered by the Proxy Advisor guidelines.

Simon Connal also values engagements designed to help clarify why a company is considering a change “Whether it be an amendment to the constitution or a change in remuneration structure, we are always willing to engage and provide feedback.”

One thing all the proxy advisory firms agreed on, and it goes to heart of why FIRST Advisers integrated mode, which includes IR and Governance, works so well, is that listed companies need to create focussed, appropriate and effective communication for Proxy Advisors and the shareholders that seek their advice.

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