Bernie Ripoll (Oxley, Australian Labor Party) Share this | Hansard source

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee’s report entitled Better shareholders—better company: shareholder engagement and participation in Australia, together with the evidence received by the committee.

Ordered that the report be made a parliamentary paper.

I am pleased to table the report of the Parliamentary Joint Committee on Corporations and Financial Services into shareholder engagement and participation in Australia. Best practice corporate governance in Australia’s companies depends on shareholders engaging in a meaningful way with company boards and holding them to account through company votes. This requires good channels of communication between companies and shareholders through clear company reporting and effective face-to-face discussion. It also requires an effective and transparent company voting system that allows for informed decision-making by shareholders.

The committee found that the regulatory framework for shareholder engagement in Australia is generally adequate. However, there is room for improvement. The committee also found areas where companies themselves could be encouraged to do better in this area. The committee heard that one of the main problems for companies wishing to engage with institutional shareholders is the complexity of many share ownership arrangements. These arrangements, including equity swaps and contracts for difference, make it difficult for companies to identify beneficial share owners. The committee encourages institutional shareholders to make direct contact with companies they invest in. It also recommends that the government consider amending the tracing provisions in the Corporations Act to include derivative instruments.

Some institutional investors also felt that the ASX’s continuous disclosure requirements prevent them from engaging with shareholders on sustainability issues. The committee has responded by recommending that the ASX clarify the scope of their continuous disclosure requirements to allow companies to safely respond to queries about long-term environmental, social and governance matters.

Communication between companies and smaller retail shareholders can also be improved. Shareholders continue to struggle with dense, barely comprehensible company reports. To encourage companies to better tailor their reporting to the needs of shareholders, the committee recommends that the mandated concise report be scrapped in favour of a voluntary, clear, short report. We have also recommended that ASIC establish best practice guidelines for clear and concise company reporting. Companies’ annual general meetings could also be more shareholder-friendly. AGMs should be at convenient times, allow reasonable opportunity for discussion and questions, and best utilise technology to reach shareholders. The committee recommends that ASIC also establish best practice guidelines for company AGMs.

The committee has also recognised that predatory share price offers have a negative effect on the shareholders’ views of the companies they invest in. We recommend that access to share registers should be limited to the details of those with substantial holdings, except in certain legitimate circumstances.

Disclosure around short selling and margin lending can also be improved. The loophole allowing covered short sales to go undisclosed needs to be fixed. Institutional investors should also make sure that they are disclosing their stock-lending policies to members. The committee has also suggested that the rules governing the disclosure of director-shareholders’ exposure to possible margin calls are inadequate. The government should clarify the uncertainty over the materiality of directors’ margin loans and the circumstances in which disclosure to the market is required.

The integrity of company voting systems is also important. Companies should implement electronic proxy voting systems to provide a proper audit trail, and the Corporations Act needs to be amended to prevent cherry-picking of proxy votes. The committee also recommends that the government investigate the best way to prevent vote renting. A good way to address the problems with the integrity of proxy voting is for companies to allow absentee shareholders to vote directly. The committee recommends that the ASX encourage direct voting via an ‘if not, why not?’ provision in its corporate governance principles and recommendations.

As well as being fairly conducted, shareholder voting needs to be informed. The committee is of the view that shareholders would benefit from being able to vote after deliberating on discussions at company meetings and recommends that consideration be given to postponing voting until after the close of company AGMs.

Another area that is open to improvement is the way companies nominate candidates and conduct board elections. Too often, directors become entrenched on boards and potential quality candidates are excluded. The committee recommends that ASIC develop a best practice guide to companies’ constitutional arrangements for nominating and electing directors. Finally, the committee believes it is not appropriate for director-shareholders to be able to vote on their own remuneration packages and recommends that the Corporations Act be amended to exclude them from doing so.

My thanks go to all the people who made submissions and gave evidence to the committee during the inquiry, as well as the committee secretariat for their hard work and assistance and all the committee members for their diligence and participation in this very important inquiry.

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