Controversial regulations on proxy advisers, seen in some circles as targeting the industry superannuation fund-backed Australian Council of Superannuation Investors (ACSI), have been rejected by the Senate.
The regulations had officially come into force only three days earlier.
The necessary approval by the Senate on Thursday was thwarted by a move to have the regulation disallowed by independent South Australian senator Rex Patrick.
The regulations, which imposed strict new requirements on proxy advisers, including the need for them to apply for new licenses from the Australian Securities and Investments Commission (ASIC) and fines of up to $11 million for breaches, were introduced by treasurer Josh Frydenberg just before Christmas.
They were supported by the Australian Institute of Company Directors and other business groups, but strongly opposed by proxy advisers and ACSI whose business model was based on its role of advising super funds.
Concern over influence
Critics saw it as a move to stymie the power of proxy advisers including ACSI to pressure company boards on issues of environmental and other social issues. In a broader sense, it was seen as an expression of concern by business groups about the increasing influence of the $900 billion industry super fund sector.
Senator Patrick’s motion succeeded by 29 votes to 25 in a move which gained the support of the entire Senate cross bench including the Greens and One Nation.
An angry Mr Frydenberg told the ABC that said the Labor Party had sided with the Greens to roll back reforms designed to improve the accountability and transparency of the proxy advice and superannuation sectors.”
“Our reforms were designed to strengthen the integrity of our corporate governance regime and ensure more consistent regulation across the financial services industry,” Frydenberg said.
Significant blow to the government
Senator Patrick said the laws would have been detrimental for shareholders.
“This was bad law, crafted to please Josh Frydenberg’s big business mates and political donors, and the Senate rightly rejected it,” he said.
He described it as “one big thought bubble from the Treasurer that just wasted taxpayers’ money and the parliament’s time”.
Greens senator Nick McKim described the move in the Senate as “a significant blow to the government’s agenda of looking after its billionaire mates”.
“We need far greater scrutiny of corporations in this country, not less,” he told the ABC.
“The Liberals should be ensuring that billionaires and big corporations pay their fair share of tax, instead of letting them off the hook in every way possible.”
Shadow assistant treasurer Stephen Jones said it was “a great outcome for transparency and shareholders”.
“Perhaps Josh Frydenberg can now spend his time dealing with real problems in the economy, not the invented problems,” Jones said.
The regulations directly affected the four proxy advisers in Australia: the Australian Council of Superannuation Investors (ACSI), CGI Glass Lewis, Ownership Matters and ISS.
Ownership Matters co-founder and director Dean Paatsch said “the entire exercise was a cluster fiasco”.
“It was profoundly disappointing that the government indulged crony capitalists and the major business lobbies at the expense of respect for property rights, the freedom to contract and the right to confidential advice”.
He said the new laws “weaponised financial services laws to punish advisers” with hefty fines which would have imposed restrictions on advisers’ access to capital, as well as adding constraints on who they could employ or associate with. The regulations included a requirement for proxy advisers to send copies of their reports by email to ASX companies on the same day they delivered their advice to clients.
“Advisers were required to make notes of verbal conversations about voting issues with investors and send those records to the company,” Paatsch said.
He said this would have exposed advisers to fines of up to $11.1 million (for companies) and $1.1 million (for individuals) if the duties to report were breached.
Proxy advice has influential role
Australian Council of Superannuation Investors (ACSI) chief executive Louise Davidson said she was pleased the “unprecedented rules” had been disallowed.
One of the changes would have required proxy advisers to be independent of their clients, potentially signalling the end of ACSI’s current model. The organisation is owned by some of the nation’s largest industry super funds.
“Proxy advisers play an important role in facilitating informed shareholder voting at listed Australian company meetings on a range of financially material issues,” Davidson said.
“The regulations were rushed through without parliamentary scrutiny and with no justification, rationale or harm identified.”
She said advisers would have faced “more onerous red tape” including the fines for “small administrative errors”.
The Australian Institute of Company Directors (AICD) managing director, Angus Armour, said the AICD was disappointed at the rejection of the regulations.
“Proxy advice is a profitable, global industry,” he said.
“Given its highly influential role in Australian markets, it is appropriate that proxy advice is regulated to these reasonable standards.”