In a significant win for investors, the federal government has lost its ham-fisted attempt to neuter proxy advisers – those independent groups that help investors large and small decide on major issues confronting listed companies and on how to vote on these proposals (especially corporate pay).
The government’s lost a vote in the Senate on Thursday that effectively rejected the new regulations on proxy advisors that would have shielded directors and executives from investor scrutiny.
The move to introduce the policy via regulation was made by Treasurer Josh Frydenberg who had been lobbied by several Melbourne law firms associated with some of the companies that had lost votes on issues such as the remuneration report at AGMs.
He issued the regulation just before Christmas as Australia battled Covid omicron and the usual holiday switch-off had begun.
Frydenberg went down the regulation route when it became clear he would not be able to get the proposal through the House of Representatives without delays and what could have been an embarrassing parliamentary inquiry into the proposal and its origins.
So he introduced the changes via regulation, which under law can only be defeated via a vote to disallow the regulation in the Senate.
South Australian independent Senator Rex Patrick was successful in defeating the Treasury Laws Amendment regulation on Thursday after introducing a disallowance motion in the Senate, with 29 votes supporting his motion and 25 against. He and The Greens jointly put the motion to the Senate.
Treasurer Frydenberg has waged a war on proxy advisors and the superannuation sector over the past year – especially industry super funds who have used proxy firms to help decide on wither to support a wide range of issues at AGMs – ranging from climate change, to corporate pay, to bonus issues, to political advertising and employment practices.
An absurd concern raised by the government has been claimed fears about the dominance of superannuation funds in the investment landscape, with funds owning more than 20% of the shares listed on the ASX.
That’s a ridiculous straw man argument because with our system of compulsory super, big fund managers (which include the likes of Macquarie as well as foreign owns funds – such as Vanguard and Blackstone as well as industry funds) were always going to own an increasing amount of the shares listed on the ASX.
Where else would they invest some of the billions of dollars they get a year? They would be criticised if they did not invest more in ASX listed companies and support small, medium and large companies.
Among his controversial policy ideas, Mr Frydenberg wanted to force proxy advisors to give companies a copy of their advice when they give it to their clients or face steep fines and to ensure superannuation companies and proxy advisors are independent of one another.
The Australian Council of Superannuation Investors, which provides recommendations to superannuation funds holding $1 trillion worth of assets, had criticised the changes as “unprecedented intervention”.
Parts of the regulations, covering the provision of proxy advice to affected companies, only came into operation on Monday. The rest were due to start from July 1.
As a result of the Senate’s rejection, the government is now prevented from making any new rules affecting proxy advisors for at least the next 6 months.
Investors will continue to get a lead on key votes for annual meetings, especially remuneration reports, corporate pay, bonuses and options which are the hot button topics at most meetings.
