Major institutional investors back new Australian corporate engagement code

Some of Australia’s largest institutional investors and governance groups have helped draft a new set of guidelines to help engagement with listed companies.

The extensive list includes representatives from BlackRock, Colonial First State Global Asset Management, CGI Glass Lewis, ISS, First State Super, Local Government Superannuation Scheme, UniSuper and Regnan to name just a few. Leading domestic corporates are also involved (full list via this link).

The guide is being put together by Governance Institute of Australia, the independent professional body, and governance stalwart Sandy Easterbrook in the latest example of greater cooperation between large shareholders and companies exemplified by the new Shareholder-Director Exchange (SDX) in the US.

Feedback is being sought for what’s hoped to be a definitive set of guidelines that will be supported and adopted by both companies and investors.

An “exposure draft” of the guidelines has been launched today (February 26) for consultation, with comments due by April 24. The aim is to assist ASX-listed companies and their institutional investors to engage more effectively “to enhance long-term performance and corporate value”. A final set of guidelines will be issued following the consultation process.

It reflects a “consensus that both sides would benefit from a best practice code that establishes clearer lines of communication, promotes greater transparency in governance-related decision-making and sets a course for a more productive relationship between the two groups”.“Companies and their largest investors depend on one another for their mutual success,” said Governance Institute of Australia Chief Executive Tim Sheehy.

Symptoms of poor engagement the team has highlighted include when companies only initiate contact with their shareholders when ‘bad news’ is imminent. Another is when they are taken by surprise at an AGM because they’re unaware of their largest shareholders’ voting intentions.

Easterbrook says the draft guidelines aim to overcome the obstacles to engagement, such as the “complexity” of the investment chain which can make it difficult for companies to know who makes the real voting decisions and what factors they consider.

He said: “We recommend that institutional investors disclose on their websites who has voting power over what issues so companies can readily identify the correct party with whom to establish an engagement program.

“We also suggest that investors be upfront with their policies on proxy voting and the governance guidelines used to judge whether a company’s actions are appropriate.”

Easterbrook founded Australia’s first governance and proxy advisory firm, Corporate Governance International (now CGI Glass Lewis). He is a former board member at the International Corporate Governance Network and is a Regional Advisor for UK-based Governance for Owners. Link