In the second report of its kind, ASIC said the most recent AGM season was conducted in “unique circumstances” against the backdrop of the Banking Royal Commission.
The season saw an increase in the number of remuneration strikes accompanied by an upsurge in the magnitude of 'against' votes on remuneration reports, the regulator said. Issues raised by shareholders included the complexity of remuneration structures (particularly ‘combined’ plans, which amalgamate long-term and short-term incentives) and "a sense of inequality where wage growth of other company employees is low or stagnant".
'For’ votes in the banking sector fell significantly from around 96 per cent in 2017 to around 66 per cent in 2018. ASIC said the result appears to be directly related to the conduct-related concerns highlighted by the Royal Commission and, in particular, “those companies’ failure to account for this through their remuneration practices”.
However, ASIC observed shareholders using remuneration report votes to signal “broader” discontent rather than discontent exclusively relating to executive remuneration. “Remuneration reports that received a strike were not limited to remuneration amount or structure but were used to show discontent with share price performance and other conduct issues,” ASIC said.
Further on this theme, “Several chairpersons and CEOs used their opening addresses at AGMs to acknowledge failings or mistakes made by the company and commitment to improving.”
Shareholders requisitioned resolutions on Environmental Social and Governance criteria (ESG) issues in four ASX200 companies in the 2018 AGM season (a total of 11 shareholder-requisitioned resolutions overall), a decrease from 2017, where six ASX 200 companies received shareholder requisitions on ESG issues.
ESG issues featured prominently at a number of AGMs, and climate change was the most commonly raised ESG issue ASIC observed. "Shareholders sought to understand the steps boards were taking to identify, address and mitigate climate-related risks to the company’s business, as well as advocating for boards to take action – for example, by committing to certain emissions targets or limiting business with non-renewable energy companies", the report found.
ASIC Corporate Governance Taskforce
The report also provided details on the scope of the Corporate Governance Taskforce, announced by the Federal Government in August 2018.
The Corporate Governance Taskforce will review a selection of entities within the ASX 100 (both those providing financial services and those not), to closely observe governance practices across the spectrum of large listed companies.
The taskforce has three key areas of focus:
- the role of the board and officers in the oversight (and in the case of officers, the management) of non-financial risk
- board decision making on executive remuneration, including the granting and vesting of variable remuneration
- the adequacy and effectiveness of existing corporate governance disclosures against entities’ governance practices.
In September, Commissioner John Price addressed the Annual Chief Risk Officer Conference on the topic: ‘ASIC’s strategic focus and key priorities over the next year: Improving conduct and restoring trust’. He said the taskforce “will look at how directors are actively exercising their stewardship functions, particularly in relation to non-financial risk”.
In particular, the review will consider the following questions:
- How are directors and officers ensuring that they know enough about the entity to ask the right questions? How do they know what they are not being told?
- How are they holding their executive teams to account?
- In large, complex entities, how do they ensure that they have meaningful oversight over all material non-financial risks of the entity?
- How are they satisfied that the compliance and risk functions of the entity are being adequately funded?