Ahead of the upcoming AGM season, the Australian Shareholders Association has released a policy discussion paper outlining key areas of interests for its members and the Australian Council of Superannuation Investors has released its updated sixth edition of its ACSI Governance Guidelines - A guide for superannuation funds to monitor listed Australian companies which sets out how ACSI will be assessing the behaviour and performance of public company directors. These documents may provide useful guidance to boards in assessing their governance arrangements and structuring executive remuneration.
The Australian Shareholders Association (ASA) has released a policy discussion paper which focuses on the following key areas of interest for its members:
- Non-Executive Directors, with recommendations including:
- 12 year tenure limit for both independent directors and audit firms;
- requiring ASX200 companies to have at least one female board member;
- a “one strike” policy whereby ASA will consider opposing a long-serving chief executive officer or chair where they were clearly responsible for decisions resulting in material investor losses;
- allowing full time executives to hold a single non-executive board seat elsewhere; and
- a preference for capital raising to be conducted through a renounceable entitlement offer followed by a single book build to compensate institutional and retail non-participants;
- Communicating and engaging with retail shareholders, with recommendations including:
- the design of a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at AGMs; and
- a preference to go straight to a poll for voting, the retention of the proxy voting system, earlier notification of ASA’s proxy position ahead of AGMs, and an ability to report back to proxy providers after an AGM;
- Executive remuneration, with recommendations including:
- the potential pay of chief executive offers should be genuinely ‘at risk’, and their fixed pay should not exceed double that of the next highest paid executive;
- remuneration for key management personnel, other than the chief executive officer, be approximately 50% (and not less than 30%) as base pay, 20% as short term incentive and 30% as long term incentive; and
- generally discouraging short term incentive schemes and favouring the relative total shareholder returns against comparator companies from similar industries as a performance measure for long term incentive schemes.
Submissions on the policy discussion paper were due by Monday 10 September 2013, with any formal changes to the Policy Paper following submissions to be announced before the end of September 2013.
The Australian Council of Superannuation Investors (ACSI) has also released its updated sixth edition of its ACSI Governance Guidelines - A guide for superannuation funds to monitor listed Australian companies which set out how ACSI will be assessing the behaviour and performance of public company directors.
ACSI’s new guidance focuses on:
- Director elections – including the performance of the company under the incumbent board, length of tenure, performance of the relevant director on other boards and assessment of the director’s capacity and workload;
- Executive pay - including the payment of bonuses for making acquisitions and rewarding ‘empire building’ rather than improved performance, retention payments without a clear or robust rationale and termination payments that provide reward for mediocre performance or failure;
- Two strikes – companies which have received a first strike should respond to investor concerns by engaging and addressing material remuneration issues; and
- Capital raisings – emphasis on the role of board in overseeing capital raising processes and the need to maintain effective oversight of management and external advisers to ensure shareholder expectations are met.
See also ACSI’s media release.