Australia pushes ahead with proxy reforms

January 7, 2022

The Australian government has introduced a new regulation to reform proxy voting advice services.

The reforms extend the country’s financial services licensing regime to cover a broader range of proxy adviser activities and requires them to be “independent of their institutional clients”, according to a statement from federal treasurer Josh Frydenberg, the minister who put forward the plan.

The reforms pose a threat to Australia’s four dominant proxy advice firms, but in particular the Australian Council of Superannuation Investors (ACSI), which is a member organisation for pension funds that also provides proxy advice.

The new measures also require proxy advisers to provide a copy of their recommendations to companies on the same day they are provided to investors. This is revised from an earlier proposal of the new reforms, which required advisers to send their recommendations to companies before investors. Superannuation funds that vote on behalf of members must also disclose detailed information on their voting records.

The licensing and transparency requirements will come into effect on 7 February 2022, while the other rules on disclosure will take effect from 1 July 2022. Breaking the rules will incur hefty civil penalties.

Australian investors have been lobbying against the change for the past few months. As we previously wrote in May 2021, the rule changes would undermine the rights of asset owners to vote as they wish and give undue power to companies.

At the time, Minerva CEO Sarah Wilson described the Australian government’s proposals as “an extraordinary and authoritarian attack on basic property and establishment rights”, adding: “We only have to look at the effect of issuer influence over the credit rating agencies to understand that research independence and objectivity is something the markets need and should cherish.”

In 2017, independent watchdog Australian Securities and Investments Commission undertook a review of proxy advice services and found no further regulation of proxy advice was needed. At the time, it stated there was “no consensus on any specific areas in which existing industry guidance on the engagement process was deficient and should be updated”.However, as such advice services have become more influential, increasing complaints from company directors under scrutiny has sparked the latest reforms.