The Australian Council of Superannuation Investors (ACSI) has called for a series of sweeping changes to Australia’s corporate governance rules to hold companies more accountable for misconduct.
Put simply, ACSI wants to see the annual election of directors, a binding vote on pay every three years and disclosure of the chief executive’s pay ratio to that of the company’s median worker.
There has been a global momentum to address governance failings in capital markets, according to ACSI chief executive Louise Davidson.
But in her view, Australia has generally been slower to respond to these failings.
“Many of ACSI’s proposals have already been introduced in other developed markets, such as the UK and US,” she says.
“Australia has some catching up to do to modernise our corporate governance framework and bring it into line with best practice overseas,” she says, adding the Hayne royal commission has underlined the need for change.
In the lead-up to the federal election, the peak group for superannuation investors is government, policy makers and regulators to commit to implementing these proposals.
Already, the US and the UK have annual director elections.
“Feedback from investors in the UK suggests that both annual director elections and a binding vote on pay policy have become important engagement tools,” Davidson says. “Companies are more willing to listen to the views of investors and other stakeholders.”
Davidson is the first to concede that British companies had serious misgivings when annual director re-election was proposed in 2010. But she notes by 2011, 88 per cent of FTSE 100 companies had adopted annual director election as best practice. Further, last year, UK ‘s Corporate Governance Code extended the recommendation for annual director re-election to all listed entities.
Moreover, on the pay ratio disclosure front, similar measures to ACSI’s proposal were recently introduced in the UK and US.
“The US experience has shown that the new disclosures are used by a broad range of stakeholders, including investors, government, regulators, other entities and workers,” she explains.
Investors need companies to have the right people at the top with sufficient accountability, according to Sacha Sadan, director of corporate governance, Legal & General Investment Management.
“ACSI’s proposals for annual director elections, votes and disclosure on pay, and greater shareholder power are important steps in this direction. Similar measures have had a positive effect in other markets, making companies more accountable to their end investors. We encourage Australian regulators and policymakers to adopt these constructive proposals.”
ACSI also wants companies to set up a simple process for investors who want to submit non-binding resolutions.
“In other jurisdictions where non-binding shareholder resolutions are permitted, we have seen shareholders use them to improve company disclosure on risks associated with sustainability, climate change and labour and human rights,”Davidson argues.
Implemented in full, she goes on to say, these measures would encourage boards to ensure that they are adequately informed about business issues, properly equipped to oversee management, and prepared to take appropriate remedial action when things go wrong.