Institutional Shareholder Services (ISS) has released a report identifying the key themes to emerge from the 2018 AGM seasons in Australia (at ASX 300 companies) and New Zealand.
With respect to Australia, much of the report is focused on the 'record' level of dissent against remuneration reports and the possible reasons behind it.
Remuneration
There was a record 26 'strikes'
votes of 25% or more against a remuneration report) in the ASX300
- ISS comments that the 'standout feature' of the 2018 AGM season was the extent of shareholder dissent against larger companies. In the ASX 100, 16% of companies received either a 'strike' or a 'near miss' (votes between 20-25% against a remuneration report).This group included four of Australia's top ten companies by market capitalisation.
- The sum of strikes and 'near misses' equated to a record high 39 companies in the ASX300 with a material level of shareholder dissent.
What caused it?
ISS attributes the high level of shareholder dissent to a number of causes including the following.
- misalignment of executive remuneration with financial results and/or governance failures
- inadequate disclosure by companies which made it difficult for shareholders to understand what the bonuses represented, combined with excessive remuneration increases
- concerns over the structure of 'combined incentive plans' ie plans that 'amalgamated short term and long term incentive plans'.ISS attributes the high levels of shareholder dissent to the lack of long term performance hurdles in many plans which ISS suggests may have given rise to concerns that equity bonuses would be given without first being earned through achievement of performance hurdles aligned with shareholder interests
- sign of increased pressure on boards to be accountable for governance issues (eg issues identified by the Financial Services Royal Commission).
Second strikes
Four companies in the ASX300 received second 'strikes'.ISS asserts that spill resolutions at two companies appear to have been driven by a single activist shareholder in each case respectively and that this contributed to the elevated' levels of support for the resolutions in each case.
Votes against director election
Shareholders appear to be increasingly willing to hold directors accountable for governance failures? There were 700 management proposals in the ASX300 to elect or re-elect directors in 2018.ISS observed an increase in the number of directors incurring a high percentage of votes against their election with shareholders increasingly willing, ISS suggests, to hold directors accountable for governance failures.In addition, ISS suggests that some shareholders appear willing to vote against directors based on their performance or governance failures at other organisation(s) where that director may have held an executive/non-executive director position.
Shareholder pressure leading to change outside the meeting process?
The report suggests that there is evidence that pressure from shareholders is impacting boards (outside of the meeting process).For example: there were a number of instances in which director nominations seeking reelection were withdrawn ahead of the AGM, there were a number of resignations of high profile chairs and directors, and a number of directors undertook to step down from boards at the end of the year/end of their term and/or retire.
Number of shareholder resolutions consistent with past years
1,899 resolutions were put to shareholders at ASX300 companies (which is consistent with 1,833 resolutions in Fiscal 2017 and 1,867 resolutions in Fiscal 2016).ISS recommended voting against management in approximately 11% of cases.
