On 27 June 2018, ASIC published Report 578 on proxy adviser engagement practices during the 2017 annual general meeting season, focusing on the four major proxy advisers operating in Australia: CGI Glass Lewis, ISS Australia, Ownership Matters and Australian Council of Superannuation Investors. Below are the key findings:
Engagement policies of proxy advisers
The engagement policies of all the proxy advisers appear to reflect:
- a willingness to engage with companies and make a copy of their report available to companies either prior to or after publication;
- a desire to ensure independence from the companies that are the subject of their reports; and
- a willingness to receive feedback from companies in relation to potential factual errors and to correct material factual errors.
However, there are some notable differences in the engagement policies of the different proxy advisers, including:
- CGI Glass Lewis is the only proxy adviser with a "blackout" period for engagement; an
- ISS Australia is the only proxy adviser that provides pre-publication drafts to companies.
Engagement with companies who were the subject of reports
Out of the 80 proxy adviser reports that ASIC reviewed, engagement with companies who were the subject of the reports occurred in 65 cases. However, only 52 reports disclosed some kind of engagement with the company who was the subject of the report.
Of the remaining 15 proxy adviser reports, the proxy adviser offered to engage but the company declined or did not respond in 11 cases, the company requested engagement but the proxy adviser declined in 2 cases, and there was no contact with the company at all in 2 cases.
Variation in level of detail and content of disclosure
Some proxy advisers had upfront disclosure in their reports about the timing and method of engagement as well as general topics discussed
Others did not have the upfront disclosure but did contain detail to reflect, for example, additional information provided by the company on a particular issue or a summary of the company’s views where that view differed from the proxy adviser.
ASIC's recommendations
ASIC made a number of recommendations for proxy advisers at the conclusion of its report, including:
- the purpose of proxy adviser engagement is to ensure the factual bases or contexts for their conclusions are correct; it should not be viewed as an advocacy opportunity;
- engagement policies and voting guidelines should be easily accessible, for example, published on the proxy adviser's website;
- providing sufficient time for companies to respond to a request for fact-checking of a draft report;
- ·notifying companies of any "against" recommendations and explain the reasons for these recommendations;
- disclose in proxy adviser reports the nature, extent and outcome of engagement with the subject company and a summary of the subject company's view on a particular issue where that view is different from the proxy adviser's; and
- consider feedback in relation to factual errors in their reports and rectify substantive errors.
ASIC also made a number of recommendations for companies, including:
- seek out information about the engagement practices of proxy advisers;
- engage proactively with proxy advisers outside of peak periods (September to October);
- release their notices of meeting to the market as early as possible;
- ensure disclosure to the market is full, clear and not overly complex;
- continue engaging directly with investors regarding any voting decision;
- in relation to "against" recommendations, seek to understand the concerns underlying the recommendation through engaging with the proxy adviser;
- ensure that confidential, price-sensitive information is not selectively disclosed to proxy advisers during engagement; and
- notify proxy adviser of material false or misleading matters in a proxy adviser report promptly and seek a correction.
What should you do?
If you have any questions about any of ASIC's recommendations, or need specific advice relevant to a proxy adviser engagements or reports, get in touch with Rory Moriarty or Rod Halstead.