Proxy advice to institutional investors – particularly relating to ESG issues as well as board pay – may be in jeopardy under a government crackdown according to Australian Council of Superannuation Investors CEO Louise Davidson.
The proposal would also force proxy firms to become independent of super funds, something which would impact the current structure of ACSI, Davidson said.
“One part of the paper is clearly aimed at ACSI because we are the only proxy organisation that is a membership organisation and our members are super funds,” she said.
Federal Treasurer Josh Frydenberg proposed changes to rules requiring proxy advice firms to hand over their research and non-binding voting advice to companies five days in advance of giving it to their clients who pay for the service.
“It is really unclear to us what part of the problem that part of the paper is setting out to solve … there is some concern around independence but usually the concern would relate to whether [proxy advisors] have a relationship to the companies they are providing advice on.”
The firm has been vocal in its criticism of major companies including Rio Tinto, board failings at Crown Resorts and companies’ responses to climate change issues.
“We have been working for years now on climate change, on board gender diversity, more recently on sexual harassment, because these are material issues for our members who are long term investors. If this (proposal) went through as currently proposed … it would put our work at risk which means that investors’ ability to make sure that companies are dealing with such issues would also be put at risk.” she said.
Davidson maintained that addressing such issues is vital to maintaining the core responsibility of providing the best financial outcome for super members.
ACSI is owned mainly by industry super funds with combined assets of more than $1 trillion.
There are four main proxy advisors in Australia – ACSI, Ownership Matters, ISS Australia and CGI Glass Lewis.
For Ownership Matters director Dean Paatsch, one of the most compelling problems with the proposal is the possibility that it may force researchers to give away their intellectual property for free.
“Our research is full of financial representations and is no different in law to (that of) any other research providers, we are regulated with an Australian financial services license, he said
“You can be a sell-side researcher or a hedge fund sales desk and nowhere does the government say how you should produce that research, it will give you some general principals, but nowhere does it say you have to give your research away five days before you are permitted to publish it to your client,” he said
“If this gets up, it’s a big shift in the way that we regulate financial services.”
He said what he is particularly aggrieved by is the government would be requiring him to “disgorge (his) valuable intellectual property”, that other people pay him for under contract, to another company with no obligation, for free.
“What other kind of IP is required to be given to another party which is not a part of the contract,” he said.
The closing date for submissions on the consultation paper is June 1.
