What seems to have happened in the past few years is some companies and business lobby groups have got into Frydenberg’s ear about the growing influence of proxy advisers, class actions, litigation funders and the continuous disclosure regime on their business activities. What they really mean is it increases board accountability.
Some directors are concerned the proxy advisers have become powerful and are straying into areas they shouldn’t such as climate policy.
Frydenberg listened and acted, regardless of the impact on capital markets and investors. He did this with the continuous disclosure regime and an attempted crackdown on class actions and litigation funders. But none have come back to bite him as much as proxy advisers. Part of the problem is the way it was done.
It doesn’t matter if Frydenberg has been planning a crackdown on the proxy sector for months or years, it is all about perception.
On Friday evening it was down to the wire on which way the disallowance vote will go. Labor, the Greens and Senator Patrick will vote to disallow it, along with a few others. But new crossbencher Senator Sam McMahon said she was “still considering it” but that she was inclined not to support it.
There is a feeling that one or two in the Coalition may abstain from voting in a silent protest, which might give Patrick the votes he needs.
Whatever the case, Frydenberg is seen to have overreached. Some of the regulations on proxy advisers include imposing a penalty of up to $11 million if they step out of line. Even the independence obligation creates more red tape instead of tackling the conflict of interest issue in a sensible way.
It prompted one of the proxy advisers, Dean Paatsch from Ownership Matters to write in an opinion piece, “If we send a copy of our advice to an incorrect email address, we are now open to an $11.3 million fine. The new rules confiscate our intellectual property – they void copyright in our reports, prevent us from charging companies for them and provide no restriction on what companies can do with them.
“These outrageous intrusions into the property rights of private citizens might have been dreamt up in Pyongyang.”
Other requirements include the release of proxy reports to the company the same day they release them to clients, along with any other forms of communication, which is both a concern and compliance nightmare.
This was set out in the explanatory statement, which says, “for example, if a licensee provides its client with proxy advice that is partially written and partially oral, the licensee must provide that proxy advice in writing to the relevant body or responsible entity.” It says this “obligation” is to promote transparency.
‘These outrageous intrusions into the property rights of private citizens might have been dreamt up in Pyongyang.’
Dean Paatsch, Ownership Matters
The crackdown has triggered a barrage of criticism on social media, in parliament and among some high profile commentators. Terry McCrann recently wrote “The best thing that can be said about both the underlying law change and the regulations to ‘enforce it’, with a capital-F, is that it’s another example of a government trying to “break a butterfly on the (torture) wheel”.
The Australian Financial Review’s Chanticleer described it as power play by the director club. Commentator Janet Albrechtsen tweeted out, “Hard to disagree with claims that the reforms are overreach drafted by people who don’t understand business,” while AFR columnist Joe Aston wrote two excoriating pieces that looked at the motivation behind the push. “This proxy ambush was public policy as campus politics. Lucky for Leibler Jr, Australia has an undergraduate Treasurer who, instead of doing his own job, is settling other people’s scores as if they were his own.”
Meanwhile, Liberal Senator Concetta Fierravanti-Wells in her role as chair of the Senate Standing Committee for the Scrutiny of Delegated Legislation fired off a letter to Frydenberg, raising concerns that should be taken seriously.
While it is the committee’s job to scrutinise and outline concerns, her letter asks why the use of regulations for “such significant matters rather than primary legislation”, which would require full parliamentary scrutiny, and says it “appears to be inconsistent with the guidance provided in the Department of the Prime Minister and Cabinet’s Legislation Handbook.”
A breach doesn’t result in an automatic fine and it is up to the courts how much that fine will be, with a maximum of just over $11 million. It is up to the Australian Securities and Investments Commission to decide whether to take court action if it deems there has been a breach.
At the end of the day, what is forgotten in all of this is shareholders own the company, not the directors, and they should be allowed to have their say.
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