Directors and proxy advisers need a robust and respectful relationship
While proxy advisers are not new kids on the block, their influence in the Australian boardroom is becoming more profound. Specialising in researching and analysing proposals being put forward for a vote by shareholders, proxy advisers should — first and foremost — be guided and committed to the longstanding principles of good corporate governance. As a consequence, proxy advisory firms have been progressively influential in seeking recommendations to vote against remuneration. Increasingly many investment funds also are 'outsourcing' their voting decisions on shareholder resolutions to proxy advisers.
Most directors have a love–hate relationship with proxy advisers but increasingly accept the importance of their role and actively engage with them on key issues even if they don’t always see eye to eye. A strong working relationship between directors and proxy advisers is crucial and must be maintained for continuity and consistency.
‘No’ vote recommendations cause the most angst for boards especially as this often translates into an attack on the proxy adviser rather than the proposal they are seeking to debate. Not surprisingly, this has led to some company directors being critical of proxy advisers and their influence in the sector creating a reputation of a ‘tick the box’ approach. Failure by proxy advisers to engage with listed companies as well as their lack of knowledge and accountability for their decisions have also been flagged by company directors as a frustration along with the absence of any meaningful code of conduct. The end of any AGM season inevitably brings with it a barrage of public and private criticism of proxy advisers particularly by those the subject of no votes recommended by proxy holders.
Boards need to be on the front foot of the issue and actively engage with proxy advisers early and continually throughout the year rather than a frantic last-minute meeting pre-AGM. This will set the foundations of a mutual respectful relationship even though they may not necessarily agree on key issues. A transparency between directors through their remuneration report with a saturation of details or a ‘more is more’ approach rather than the silent treatment will give proxy advisers less reason for concern. Directors need to familiarise themselves with the benchmark being set by companies like BHP/South 32 and their level of disclosure and seek to imitate this in their reporting. They say imitation is the greatest form of flattery and in this sector, it is the sensible and best approach.