Christine St Anne: Today I'm joined by Diana D'Ambra to talk to us about some of the initiatives that the Australian Shareholders' Association or ASA is focusing on on behalf of its members. Diana, welcome.
Diana D'Ambra: Thank you, Christine. It's great to be here today.
St Anne: As we move into reporting season, what are issues that the ASA will be focusing on?
D'Ambra: We have a number of areas, Christine, that we focus on. But I hope in this upcoming season, there's probably some key areas that we're keen to look at a bit more closely. They are onboard composition, remuneration payments to key executives and also around the incentives that are paid. Onboard composition, we try to look at how long the independent directors have been there, we look at tenure. And when as a guide, if they've been there for more than 10 or 11 years, we look careful at that to see if they're still independent. We like to see a majority of independent directors on the board and that is fairly consistent with most public companies.
On remuneration, we do focus a lot on what the key executives are being paid. As you know there are some quite exorbitant amounts being paid at the moment to CEOs. And we sometimes find it hard to justify how the boards can really see their way through paying those amounts. But on the incentive side, which is a very important part of – better pay for some of the retail shareholders, we like to see the short-term incentives, no greater than cash component of less than 50 per cent, we like to see more equity in there. And on the long-term incentives, we like to see them measured at least over four years. This year it would be interesting too, because recently the ASX Corporate Governance Council, modified their recommendations to public company disclosure. And I'd like to see a direct to skills metrics included in the reporting, so that will be a new addition that we will watch closely and see what type of reporting comes out of that.
St Anne: Now, Diana, the AGM (annual general meeting) season would, of course, follow reporting season. What sort of questions should shareholders ask of company directors?
D'Ambra: That's an interesting question, Christine. And shareholders have different views on what they want to hear expressed at meetings. Retail shareholders generally are looking for steady growth and regular dividends. And there's always a balance between the two depending on the nature of the company. As an important point for most shareholders, clearly performance has been slipping, they would want to understand what are the directors doing to mitigate that slide in performance, what has altered, what are the risks that have been confronted the organization and how are they going to deal with that in the future. Similarly, companies that are performing well should be applauded and we always do congratulate them because that is a great thing for our shareholder base.
Other areas where shareholders are interested in, is where there has been adverse comment made in the media and how the companies have dealt with that, what they are doing to improve their commentary that's coming out in the public arena and we always find that is a good source of questioning.
Another area that's of concern to shareholders is when companies have done significant acquisitions. Now acquisitions in themselves are generally accretive and hopefully, they are and do add value, but it's always good for the shareholder to understand how the directors got to that decision, how that acquisition fits in with the company itself and the other business in there, and how it would improve value going forward for the group as a whole.
Likely, we've also noticed that shareholders are not just interested in financial performance but another issues surrounding how companies deal with corporate social responsibility. And by that I mean how do companies interact with the environment, what's their view on diversity, how they treat their workforce and suppliers. Because our shareholders are also looking to invest in companies that are doing the right thing for the community in generally.
St Anne: Diana, onto some some other issues. What is the ASA doing in overseeing corporate governance?
D'Ambra: As you know, Christine, the Australian Shareholders Association stands up for retail shareholders and we are their voice at general meetings and in the public arena generally. How do we do these? We have about a hundred highly skilled motivated monitors that follow companies throughout the year. During this process, what they do is they analyze company reports, look at press announcements and other public information that's in the arena. Following our research, we meet with the companies themselves. We have access to the directors, chairman, and often key management. At these meetings, we seek clarifications of the company's business practices, management decisions, and strategies going forward.
With this information, we then take what we've learned from the company plus our own research and formulate a view as to how we would vote on the resolutions that are coming up to the meetings for the shareholders, and we publish those views on our website so that shareholders can see what we are thinking. We then attend the meetings, ask relevant questions of the Board and then we approach our proxies, which are being given prior to the meeting.
For us, it's a very important process. When companies engage with us generally very well and we are really proud that we can have that access with them. We are their link really for them to the retail shareholder.
St Anne: Finally, Diana, there has been a lot of discussion about the equity issues around capital raisings, in particular, for retail investors. What is the ASA doing on that topic?
D'Ambra: That's a really interesting question at the moment, Christine. As you know, we are all about protecting property interest of our shareholders and fairness to all shareholders. We are really concerned about the significant dilution of retail shareholders over the last few years, particularly during the GFC period. Clearly, our favourite form of capital rising is where the retailers can share in an renounceable pro rata entitlement similar to the institutions.
Secondary to that, the next best alternative would be an accelerated offer to the institutions followed by the pro rata retail renounceable entitlement. Now, a good example of that was the recent NAB issue in May where they raised, I think, about $5.5 billion, and that was done with an accelerated process for the institutions, which was done and dusted in about 48 hours. And the retail offering followed straightaway at the same price and that was a great outcome I think for all shareholders.
Another alternative is to do a placement and then a share purchase plan. Share purchase plans are kept under the current rules up to $15,000 per retail investor. But we would like to see most going back on those share purchase plans to investors. So, therefore, some of those placements may need to be expanded and we're even further expanding those placements to make sure retailers get their fair share of any entitlement, and also to be able to sell those entitlements back into the market.
Clearly, where there is a placement at a significant discount, we would not be in favor of those and would not support them. At the end of the day, Christine, it's about fairness to all shareholders.
St Anne: Diana, thank you so much for your insights today.
D'Ambra: Thanks Christine. It's been great. Thank you.