Victoria Geddes, Executive Director
It seems a strange thing to put on the IR agenda, with AGM season still 5 months away for most Australian companies, but June and July are the months when companies are best placed to gain access to proxy advisors outside the peak months of proxy season (April, May, September, October, November).
Proxy advisors are happy to meet with companies outside of proxy season to:
- explain their process and to foster dialogue and understanding around their policies and services
- provide companies with the opportunity to explain what they’ve done to improve their governance since the last meeting; or
- gain an understanding of the context which might make some aspects of a company’s remuneration or corporate governance unique for legal, operational or legacy reasons.
In order to get the most out of these meetings, it is highly recommended that those attending the meeting (IRO and/or Company Secretary and a Director) provide an agenda that sets out clearly the topics they wish to cover. The initial contact should be made by one of the key executives attending (not the EA) to enable any points of clarification to happen expeditiously.
Apart from the fact that proxy advisors have little-to-no time to engage with companies during the peak reporting season, once their report is published they have limited ability to change their recommendation, unless there is a material error or it has been based on incorrect information. Once the Notice of Meeting is published, the analysts who write the report must present their conclusions based on the same information available to all shareholders. There can be no suggestion of companies trying to influence the outcome by special ‘pleading’ or proxy advisors having privileged or exclusive access to corporates.
Who is the client?
Proxy advisors provide a valued service supporting investment managers and asset owners navigate the thousands of resolutions that must be voted on for the companies in which they are invested. For the most part these are uncontroversial, but the opinions of proxy advisors are relied upon to draw attention to those practices that sit outside the accepted norm.
Companies often feel aggrieved that they are not consulted or sent copies of the report in advance of its publication. The reality is, however, that proxy advisers only write reports on a company when they have paying clients who request them to do so. They also take the view that the decisions they make should be based on the same publicly available information available to all shareholders. The methodology and guidelines which form the basis for their recommendations are available for anyone to review, so companies can check in advance how proposed resolutions are likely to be assessed and plan accordingly.
The difficulty for many companies, unfamiliar with the process, arises when a negative recommendation only registers with them once the report has been released to their shareholders. At this point there is very little that can be done apart from engaging directly with their shareholders to prosecute their point of view.
Not every company comes under the scrutiny of proxy advisors. A first step, therefore, should be for companies to contact each proxy advisor and ask whether they are on their list to cover. In our experience, they are very open about whether they do or don’t report on a particular company.
Where to start first
Before picking up the phone to arrange a meeting there is some useful desktop research which is worth undertaking that will save time and ensure that conversations are productive.
ISS encourages companies to engage with its consulting arm, ISS Corporate Solutions (ICS). ICS offer a range of services to corporates and are also available to discuss the prior year’s report, provide background information on trends, and speak to company concerns.
Start by looking at the very comprehensive ISS website which includes their policy voting guidelines.
There is also a handy FAQ section which covers most questions that are typically asked by issuers.
ISS provides complimentary access to a company’s report once it is published through ICS’ Governance Analytics platform. There is no charge for access to this platform for corporate issuers (email email@example.com).
Ownership Matters is an Australian owned business founded by three corporate governance veterans -Dean Paatsch, Martin Lawrence and Simon Connal. They are very approachable but also have an excellent website, which provides a comprehensive overview of their voting guidelines.
A copy of their research report is available to the company on request, once published (2-3 weeks prior to the Meeting) and is free of charge.
CGI Glass Lewis has strict guidelines around engagement with issuers which are detailed on their website. They are happy to meet with issuers to discuss the CGI Glass Lewis business model, operations, guidelines, and their perspective on general governance items, as well as to inform themselves about the company more generally.
CGI is the only proxy advisor to charge companies for access to their report, the fee for which is available on application.
Proxy advisors are frequently the first to be on the receiving end of a company’s ire when a shareholder vote goes against them. However, the reality is that proxy advisors aren’t going anywhere, especially with the intense focus on governance that has come so publicly to prominence in recent months. It is more productive for companies to understand the proxy advisor process, talk to them and most importantly engage actively with their own shareholders.