This opinion article by Business Council President Tim Reed was first published in The Australian Financial Review on Thursday 20 January 2021 

The Morrison government’s reforms to inject greater transparency and accountability around proxy advice are a common-sense step to improve confidence in the system. 

More than most, Australia is a nation of investors.

Nine million Australians have an investment outside their home or superannuation, around 12 million have at least one superannuation account.

Each and every one of these shareholders has a vote to cast, but the reality is very few have the time or expertise to wade through complex financial information, attend multiple AGMs and vote.

These investors, often through the large institutions that invest on their behalf, rely on the integrity of Australia’s proxy advice system.

Proxy advisors play an important role facilitating informed shareholder voting in listed Australian companies.  While it is easy to dismiss the significance of shareholder votes to an annual exercise at the AGM, my experience and that of many other public company Directors with whom I’ve discussed this issue, is that shareholder votes are a critical part of the governance framework within which public companies operate; the influence and impact of which should not be under-estimated.  The importance of this process places proxy advisers in a very powerful position.  Given this significant influence, surely it is reasonable that the highest regulatory oversights apply?

Unlike businesses who are required by law to provide timely and accurate information to the market, the four major proxy advisors in Australia are exempt from rules to ensure accountability. Surely it makes sense to require proxy advisers to provide a copy of their recommendations on the companies on the same day they are provided to investors?

Proxy advisors make decisions with huge implications for businesses and shareholders. They help decide on the election of directors, on the acceptance of remuneration reports and other corporate matters.

The advice they provide has significant impacts on the way a business is run and on the lives of their workers, suppliers, customers and communities.

As we’ve seen throughout the pandemic, it has been the leadership and robust balance sheets of responsible, well-run companies, along with the government’s actions, that have kept the economy strong. It’s in Australia’s national interest that our businesses are strong and well-run.

And, because the decisions of proxy advisers impact the largest businesses in the country, they have broad economic implications even for Australians who don’t invest.

Proxy advisors keep this system running, they are critical and businesses have an interest in keeping the sector strong.

But with the Australian exchange traded-funds market growing more than 70 per cent in the last year alone, the increasing influence proxy advisors wield demands the highest level of integrity.

Yet despite this increasingly important role, proxy advisers remain the most opaque part of Australia’s system of corporate governance.

Any moves to enhance accountability, transparency and independence can only strengthen the system and bolster community confidence.

The government’s modest and measured proposal for changes to the way proxy advisers work and disclose information makes this system stronger, to the benefit of everyone.

These changes would simply make law what is already considered best practice. They would also bring Australia more in line with the rules in the United States and United Kingdom and improve the overall governance of locally listed companies.

The integrity of this system of advice is important to every Australian.

Both shareholders and businesses need confidence that proxy advice is based on the best available facts and expertise about how decisions are made.

Tim Reed is the President of the Business Council of Australia