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ASA releases sweeping new policy agenda

ASA releases sweeping new policy agenda

MEDIA RELEASE: Sunday 30 March 2014

After almost two years of internal debate, discussion papers and public submissions, the Australian Shareholders’ Association today released a new policy platform for monitoring listed companies.
Chairman Ian Curry said ASA’s policy focus was shifting to incorporate a greater emphasis on director performance and fairer treatment of retail investors in capital raisings.

“When you consider that the ASA receives more than $5 billion worth of undirected proxies each year from tens of thousands of retail investors, it is vital we have a sound policy basis for voting these shares,” Mr Curry said.
ASA policies have evolved since we were formed in 1960. After incremental change in recent years, the ASA has done a complete policy stock take which led to a range of changed positions.

A better deal on capital raisings

For instance, the ASA will increasingly vote against directors at companies which conduct unfair capital raisings. The deluge of raisings launched after the GFC saw retail investors heavily diluted through both non-participation in pro-rata offers and selective discounted placements to institutional investors.

“The ASA is now generally opposed to institutional placements which dilute the property rights of existing holders,” Mr Curry said. “We want capital raisings to be pro-rata and renounceable with a single bookbuild at the end to ensure all non-participating shareholders receive the same compensation for their rights. The $809 million Lend Lease capital raising in 2010 remains the benchmark.”

The ASA is already intensely engaging with companies during capital raisings on issues such as artificial caps on share purchase plans and unfair limitations on investors applying for additional shares. Our new policy also requires companies to email shareholders in the final week of an in-the-money offer to maximise retail participation.

“A majority of retail investors choose not to participate in a typical capital raising so the key question ASIC, boards and politicians should ask themselves is: ‘how are we protecting the most vulnerable small investors who choose not to participate in an in-the-money capital raising’?”

“Overpaid investment banks, under-writers and institutional investors have benefitted hugely from the non-participation of retail investors in capital raisings, especially through institutional placements, so we need boards to reject unfair structures proposed by investment banks and work proactively to reform the capital raising system.”

Sharpening ASA focus on boards and directors

The most important decision for shareholders is getting the right directors on the right boards. ASA supports board diversity, maximum disclosure about the backgrounds and credentials of directors and stronger financial alignment between boards and shareholders. Our new policy requires a director to invest one year’s worth of board fees in shares by the end of their first three year term so there is real “skin in the game”.

“The ASA continues to support the idea of having an independent non-executive chairman, plus a clear majority of independent directors,” Mr Curry said. “And because independence weakens with time and familiarity, we will no longer classify directors as independent after 12 years on a board.”

Director performance is another key new focus. For instance, any director who has contributed to very poor performance at two companies will potentially be encouraged to depart all public company boards. And the same will apply for CEOs and Chairs of major public companies which led key strategic decisions that caused material losses or collapses.

“There will always be an element of judgment with these situations, but the overall message is that ASA will be voting against more directors for poor performance and opposing less directors over work-load issues,” Mr Curry said.

Conduct of AGMs and shareholder engagement

ASA Policy and Engagement coordinator Stephen Mayne said some important policy changes have also been made around the conduct of AGMs and the proxy voting system.

“Seeing as the ASA represents 3-5 times as many shareholders by proxy as those who actually attend a typical ASX 200 AGM, we want to be formally advised of our proxy position the day before the meeting,” Mr Mayne said.

“ASA has also withdrawn our support for resolutions being passed by a show of hands because this means the ASA is unable to vote its undirected proxies. From now on, we want across the board polls at ASX 200 AGMs.”

“Similarly, we now want the overall proxy position displayed at the AGM before the debate on each resolution commences, so our company monitors can tease out the reasons behind any material protest votes.”

Remuneration as important as ever

Mr Curry said executive remuneration remains a key focus of ASA policies and we remain strongly supportive of the innovative “two strikes” reforms in 2011.

“The ASA acknowledges the importance of engaging, retaining and rewarding effective management, but our key requirement is long-term alignment with shareholders where bonuses are only paid where there has been superior financial performance,” Mr Curry said. “Whilst accepting the reality of market practice, ASA’s new policy position is generally opposed to short term incentives and we encourage companies to consider eliminating the STI altogether.”

Total Shareholder Return is ASA’s preferred measurement for long-term incentive schemes because we have lost faith with some of the accounting trickery associated with things like “underlying earnings per share”. However, ASA still requires a second performance hurdle and we are holding the line in requiring performance periods of at least 4 years, something the market is slowly adopting.

For further information:
Ian Curry, ASA chairman  Iancurry@asa.asn.au or  0418 395 999
Stephen Mayne, ASA Policy & Engagement Coordinator Stephenmayne@asa.asn.au or 0412 106 241

 

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