Numbers might give you some comfort but they don’t tell the whole story, according to CFS. To get that, you have to dig a little deeper – and take a lot of meetings.
The passive giant’s former super boss has found a new home at Bell Asset Management, and comes into the increasingly tough business of active management with his “eyes wide open”.
More acrimony over ACSI in common ownership inquiry
It’s rare that an inquiry finds no evidence of harm from a practice and still recommends against it – but that’s the path the standing committee on economics has gone down.
The standing committee on economics’ inquiry into common ownership was most notable for being
one of the few inquiries of that body that regularly ended on time. Neither the committee’s LNP or ALP members were able to substantiate that the organisations they were interested in – proxy advisers and index providers, respectively – had caused any harm to the financial system, or would.
Of particular import to the committee (now headed by Jason Falinski, photo at top) was the matter of how super funds voted their shares, and what they voted them through – in this case the Australian Council of Superannuation Investors (ACSI), fresh from its brush with extinction at the hands of Treasurer Josh Frydenberg’s proxy advice reforms.
But despite the staggering dearth of evidence that ACSI is the unseen hand of a shadowy cabal of industry funds hellbent on twisting the executives of Australia’s big four banks to their will, the committee still takes a dim view of its activities.
“The committee’s view is that the use by funds of proxy advisers such as ACSI can provide a method for coordinating voting on given shareholder issues. While proxies may deny it, the efficiency and availability of the mechanism raises significant potential for anti-competitive behaviour at odds with Section 45 of the Competition and Consumer Act 2010.”
“Furthermore, the committee views with great concern the potential for institutional funds to exercise through this mechanism a high degree of control over the nationally significant sectors of the economy in which they operate-take the example of Australia’s major banks, where industry super funds can collectively vote substantial percentages of capital through their owned proxy ACSI.”
It’s a conclusion that flies in the face of hours of evidence from both sides of the aisle; the committee’s final report holds that “evidence gathered throughout this inquiry suggests that proxy advisors play a significant role in shaping the voting decisions of investments funds” when the evidence given by proxy advisers themselves suggests otherwise.
Indeed, Ownership Matters CEO Dean Paatsch told the committee that “proxy adviser influence is overstated”; that many of their recommendations essentially fall on deaf ears; and that super fund clients are perfectly happy to vote with management in the vast majority of cases.
“We can’t magically hypnotise people to act against their own best interests,” Paatsch said at the time. “And believe me, our clients – love them to death – are very motivated by economic interest…. Director re-elections is a classic.”
“We’ve recommended against hundreds and hundreds of directors in the last ten years. There’s been close to 8000 resolutions. The average incumbent non-executive director gets 96.2 per cent of our votes. So a lot of our clients are ignoring us on director re-elections.”
Still, the committee recommended that, given the “full nature of the advisory work that these firms are engaging in”, proxy advisers be required to hold another kind of financial services licence for broader services that extends beyond financial product advice; that the Australian government consider measures, such as the publishing of shareholder voting decisions, “to ensure asset managers do not use proxy advisors to collude in their voting decisions”; and that the Australian government “considers mechanisms to ensure asset managers engage with their owners in making voting decisions.”
Of course, the extent to which the “committee” recommended anything is questionable; there appears to have been a fair amount of acrimony behind the scenes too. Labor’s dissenting report questioned why proxy advisers were called before the committee at all, and suggested that the LNP’s apparent bias against industry funds was to blame.
“In the case of this inquiry, Coalition members were faced with a conundrum,” Labor members wrote in their dissenting report. “The evidence clearly showed that the largest shareholders in the Australian market were index funds, not superannuation funds. “
“To suggest that superannuation funds were having an impact as common owners, it was necessary for Coalition members to show that superannuation funds were working in concert. No evidence of this was adduced in the hearings, but Coalition members nonetheless decided to include Recommendation 2, which implies that proxy advisers somehow play a coordinating role across superannuation funds.”
Labor members labelled the recommendations as “bizarre” given that Treasurer Frydenberg’s proxy reforms had been blown out of the water just weeks before this report was handed down.
“Investors frequently choose not to follow the research provided by proxy advisers. Proxy advice is merely one input into their decision-making process,” Labor members wrote. “No evidence was provided to the committee to suggest that proxy advisers attempt to corral multiple investors into acting in unison, as though they were a single investor.”
