The Australian Council of Superannuation Investors (ACSI) is proposing a series of changes to update Australia’s corporate governance framework and hold companies more accountable for conduct that harms investors and the community.
ACSI CEO Louise Davidson said, “Too often, companies are slow or fail to accept responsibility for poor behaviour. The public and investors should not have to tolerate conduct which falls short of community expectations.”
Parts of corporate Australia seem to be incapable of demonstrating accountability for their actions. Shareholder rights should be strengthened so that investors can hold companies to account when issues arise.
Davidson said, “The Financial Services Royal Commission highlighted the need for change. ACSI’s proposals are a considered, proportionate and targeted response.”
The key changes that ACSI is calling for are:
- Annual director elections
Requiring companies to put directors forward for re-election yearly would make boards the frontline for demonstrating organisational accountability and allow for targeted and timely feedback on director performance. Annual director elections are already in place in the United Kingdom (UK) and United States (US).
- Non-binding shareholder resolutions
Effective communication between companies and investors is a cornerstone of good corporate governance. Investors should have access to a simple process for submitting non-binding resolutions to a vote by the company’s shareholders. This would give directors valuable guidance about investors’ views on a broad range of issues including environmental, social and governance risks and opportunities.
- A binding vote on remuneration policy
Companies should be required to submit their pay policies to a binding vote every three years. This would give investors greater ability to prevent inappropriate pay outcomes, such as excessive bonus payments, and help align executives’ interests with long-term outcomes. The UK introduced this requirement in 2013.
- CEO pay ratio disclosure
Companies should be required to disclose the ratio of their CEO’s pay to that of their median Australian worker, and to explain how this is consistent with the company’s values, strategy and culture. This information would benefit a wide range of stakeholders, including workers, the public, investors, government and regulators. Similar measures were recently introduced in the UK and US.
Implemented in full, these measures would encourage boards to ensure that they are adequately informed about business issues, properly equipped to oversee management, and prepared to take appropriate remedial action when things go wrong.
Today’s announcement is part of a comprehensive policy agenda that ACSI plans to release in the lead up to our Annual Conference on Wednesday 8 May. It includes a set of proposals designed to improve corporate accountability, culture and diversity, and investment stewardship.
Davidson said, “Millions of working and retired Australians hold shares in listed companies through their superannuation savings. They have the right to know that their investments are delivering sustainable longterm
returns, and that companies are not doing anything to damage shareholder value.”
“It is essential that the policy makers and regulators build on the momentum generated by the Royal Commission to strengthen corporate accountability. ACSI’s proposals will deliver significant benefits to the
Australian community, investors and companies.”