While it’s always difficult discerning long-term trends from AGM season, with hundreds of companies fronting shareholders, several meetings this year raised governance issues directors should consider.
“Board performance and director accountability continue to be a key issue to investors,” says Edward John, Australian Council of Superannuation Investors executive manager, governance, engagement and policy.
Mea culpa: CBA
The Commonwealth Bank of Australia meeting was a focus of attention following the scrutiny the bank has faced from APRA and the banking Royal Commission.
At the CBA’s AGM in Brisbane in November, chair Catherine Livingstone AO FAICD admitted the bank had neither systems nor processes in place to identify and fix problems, nor a sufficient sense of urgency to identify the root cause and prevent similar issues arising. “Your board and I regret these failings,” she said, noting board and management pay had been reduced by $100m in remuneration outcomes. She also flagged board renewal — former BlueScope Steel CEO/CFO Paul O’Malley will join the board in January 2019.
Whether some directors have taken on too many boards has been a point of discussion this year. As reported in the September issue of Company Director, there is a trend of directors holding fewer roles. The majority of directors of ASX 200 companies currently do not hold a second board position at a company on the index, according to AICD data from March this year.
Some directors this year were targeted by investor groups or proxy advisors on concerns they held too many board positions. For instance, proxy advisor ISS recommended voting against the re-election of Aurizon chairman Tim Poole — also chair of Lifestyle Communities, McMillan Shakespeare and a non-executive director of Reece — although with the disclaimer that it did not question his “dedication or competency”. Poole was re-elected, but with 16.7 per cent against.
“The workload required for any board position will vary depending on the organisation and its complexity, and may change over time with circumstances,” said Louise Petschler MAICD, AICD general manager Advocacy. “It is incumbent on each individual director to decide whether they have sufficient time to devote to a role to fulfil their duties and responsibilities.”
Executive incentive schemes had investor scrutiny, with shareholders concerned at the trend towards hybrid incentive schemes, combining long- and short-term incentives.
With a 62 per cent vote against its remuneration report, Telstra was the most high-profile case of shareholder dissatisfaction, the main concern being short-term measures of performance. Judith Fox MAICD, CEO of Australian Shareholders Association, says ASA was impressed with the structure of the report, which revealed executives’ actual take-home pay and used the market value of shares to calculate the value of bonus schemes.
The board used its discretion to reduce CEO and executive bonuses by 30 per cent in the wake of poor financial performance.
Another company under scrutiny regarding remuneration was Tabcorp. Some 40 per cent of shareholders voted against the remuneration report, in part because of the large rise in director fees and executive bonuses, which the company justified by its increased size following the Tatts merger.
Lobbying/environmental disclosure: Origin Energy/Whitehaven Coal
Some shareholders pushed for more open disclosure around lobbying activities and environmental risks. The Australasian Centre of Corporate Responsibility proposal that Origin Energy be more transparent about its lobbying activities and membership of industry groups was supported by 46 per cent of shareholders. At Whitehaven Coal, 40 per cent of shareholders voted for the miner to better disclose its climate risks.
Though the Origin vote didn’t reach the threshold to be binding and the Whitehaven vote was moot, Daniel Smith of proxy advisor CGI Glass Lewis says it would be prudent for boards to take heed. “From a director point of view, it becomes, ‘how are we managing this environmental or social risk? Could we be doing a better job communicating what we’re doing to the market to assuage shareholder concern?’”