Outdated proxy voting systems mean that shareholder votes cast by superannuation funds on matters including executive pay and corporate strategy are at risk of being lost, say corporate-governance experts.
Without system reform, proxy-voting errors from superannuation funds representing more than $1.3 trillion in working Australians’ capital are inevitable, says Dean Paatsch, director of Melbourne-based governance advisory firm Ownership Matters, in a panel session at the 2012 Australian Council of Super Investors (ACSI) conference on Thursday May 10.
An overhaul of the antiquated proxy-voting system, which sees the majority of proxies faxed through to companies, is long overdue.
“There is still too much paper,” Paatsch says. “There is no audit trail, there is no accountability and there is still no real progress on reform.”
Paatsch, who co-founded Proxy Australia in 2003 and led the company as it morphed into ISS Australia and then RiskMetrics, says the proliferation of registrar systems and intermediaries – what he calls “rent seekers” – add layers of complexity to the proxy voting system.
“By far the biggest risk for the successful delivery of proxies comes from the interaction between custodians and registers,” he says.
Strict timeframes built into the voting system can also cause errors. Even if funds issue voting instructions well in advance, the number of shares that super funds own and their subsequent votes are still decided 48 hours before an annual general meeting. This is exacerbated when large numbers of votes are placed during the six-week AGM season from October to November.
Paatsch calls for separation of the vote-entitlement date from the voting date. This can allow issuers and super funds to force custodians and registrars to lodge and accept electronic instructions only, create an audit trail and appoint an independent party to scrutinise the process.
He also advocates compulsory voting be verified by fund boards.
Danelle Bereau, senior manager of intermediary services at Computershare, says funds should make custodians and other intermediaries electronically submit votes to reduce the chance of potential errors.
Ian Matheson, chief investment officer of the Australasian Investor Relations Association, says funds should ensure they are represented on shareholder registers, even if they are in a pooled fund.