Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Common sense prevails: New proxy advice regulations overturned by the Senate

Erica Hall  |  11 Feb 2022Text size  Decrease  Increase  |  
Email to Friend

OPINION / Days after they came into effect, the Federal Government's contentious regulations on proxy advisers have been overturned by the Senate. Independent Senator Rex Patrick passed a motion for disallowance of the new regulation successfully attracting a majority vote. This means the new regulations now cease to have any effect.

Morningstar believes this is the best outcome for investors. In their short time in existence, the disruption caused by these reforms to the proxy advice sector have been significant, both in terms of time wasted during a peak reporting season period and the costs incurred of applying for a new Australian Financial Services Licence (AFSL). Long-term, we also believe these reforms would have placed undue pressure on a sector that has been effectively highlighting corporate issues, helping institutional clients identify weaknesses and mitigate risks, and ultimately improving investor outcomes. It’s great to see our democratic process in action and that the right result was achieved for the industry and investors.

The proxy advice reforms rushed through law at the end of the Australian parliamentary year in 2021 have been highly contentious. The crux of the issue was the process behind these reforms which bypassed the usual legislative process and instead relying on delegated legislation. The new regulations came into effect just a few days ago and February 10th was the first opportunity for any formal response from parliament.

Previously, the bi-partisan Senate committee highlighted concerns that the motives for introducing the regulatory changes and the mode by which it has occurred were opaque. The intended benefits were unclear because there had not been open discussions with all stakeholders. The process itself has been controversial, made in the name of “transparency and accountability”, which was ironic as the process by which the reforms were introduced were not transparent. It remains difficult to understand why it was necessary to take such an approach. These are issues we have already called out.

Morningstar’s overarching concern was that the original proxy advice reforms tipped the balance of power to companies at shareholders' expense. Proxy advisers serve an important role in the otherwise fragmented market of Australian corporate governance. They help to bring companies and shareholders together to resolve issues that companies might otherwise dismiss or ignore.

Institutional investors such as superannuation funds and fund managers engage proxy advisers to help with their decision-making process relating to the companies they invest in or are considering investing in on behalf of their investors. As fiduciaries of substantial sums of money, this is an important part of their due diligence. However ordinary company shareholders also benefit from the work undertaken by proxy advisers and institutional investors, any investor in the company reaps the rewards of the process.

Proxy advice is a specialised field as proxy advisers need to have the expertise to be able to effectively engage with companies and then provide their clients with independent advice on a range of issues. This includes director reappointments, executive remuneration, and topical issues such as climate change. Companies generally dislike the proxy advice process because it challenges the status quo, allowing their investors to hold them to account.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

is an ESG analyst, manager research, Morningstar Australasia

© 2022 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend