Disclosures of board skills matrix found wanting

Two major proxy advisory firms, GGI Glass Lewis and ISS Governance, changed their voting policies ahead of the 2015 AGM season to indicate that support of director elections or re-elections would take account of the disclosures in response to new Recommendation 2.2 on a board skills matrix in the ASX Corporate Governance Council’s guidelines. GPS Governance has released a report, Post-AGM Season Governance Report: February 2016, assessing disclosures against this new recommendation and found that only 2.5 per cent of companies provided enhanced disclosure, with approximately two-thirds not disclosing a board skills matrix or providing relatively poor disclosure.

The report also covers voting on remuneration reports, assessing not only first and second strikes, but also at how resolutions on executive director long-term incentive (equity) grants and increases to the non-executive director fee cap fared. These resolutions all passed on a majority vote.

Also canvassed in the report are the shareholder resolutions put forward by the Australian Centre for Corporate Responsibility (ACCR) at the ANZ, Origin and AGL AGMs, seeking an amendment to the constitutions of each company in regards to the reporting and management of climate change risk exposures. The s 249N resolution put forward at the Origin and AGL AGMs sought to require further information about ongoing power generation and supply chain emissions management and public policy positions relating to climate change in annual reporting, but failed to pass. The resolution put before the ANZ AGM sought to make it easier for shareholders to move resolutions; provide for the board to supply more information about how much it is exposed to carbon-intensive industries; and set public targets for reducing its exposure to carbon intensive industries, but also failed to pass.

Proxy advisory firms and institutional investors have indicated they view such shareholder resolutions favourably. But the GPS Governance report notes that ‘Although it is well within shareholders’ rights to express their dissatisfaction with the operation of a listed company, it is considered inappropriate for Australian shareholders to be afforded the capability to direct the conduct of the board, which is supported by Australian case law. This precedent was set in the case of National Roads & Motorists’ Association v Parker (1986), whereby the court ruled that it is not a function of the shareholders of a company in a general meeting to express an opinion by resolution as to how a power vested in the board should be exercised by the board.’

The report also notes that this judgment was confirmed in the case of ACCR v Commonwealth Bank of Australia (CBA)(2015).

From a governance perspective, if shareholders are strongly of the view that they should be granted the right to put forward non-binding shareholder resolutions, they should be arguing the case for a public policy change, subject to full consultation so that the views of all stakeholders can be taken into account, rather than targeting companies one-by-one through the mechanism of constitutional amendment.

The GPS Governance Report can be read here.

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