Factual errors being made in proxy adviser reports, says Aira

Dec 06, 2017
One-third of ASX 200 respondents report errors in reports

Companies listed on the Australian Securities Exchange (ASX) have revealed the large number of factual errors being made in proxy adviser reports in a survey carried out by the Australasian Investor Relations Association (Aira). These reports can critically influence votes cast by major institutional shareholders.

One third of ASX 200 respondents report errors in reports written by proxy advisers on them. Each of the four leading Australian proxy advisory firms – Institutional Shareholder Services (ISS), CGI Glass Lewis, Ownership Matters and the Australian Council of Superannuation Investors (ACSI) – are named by respondents as having made mistakes.

Aira’s chief executive, Ian Matheson, says in a statement accompanying the survey: ‘Proxy advisers play an extremely important role in critically analyzing proposals put to shareholders by companies. Companies therefore want to ensure the analysis is factually correct before it goes out. This is not about differences on matters of policy.

‘Companies want to work with proxy advisers in a constructive way to ensure shareholders are getting the best possible advice on voting matters. It should be in all parties’ interests and, indeed, for the integrity of the capital markets, for proxy reports to be factually correct.’

Aira recently called on all parties to adopt its initiative for a voluntary Code of Engagement to improve interaction between proxy advisers and listed companies.

‘We remain committed to supporting the valuable role proxy advisers play but our members are increasingly frustrated by matters like those raised in the Aira research and we continue to seek a voluntary code of conduct for proxy advisers to bring stronger alignment and consistency,’ says Stephen Woodhill, CEO of Group of 100, the Australian body for leading CFOs.

The survey also gives details of specific areas where errors are being made in proxy reports. Respondents cite examples where factual errors are made, including:

  • Misunderstanding long-term incentives in remuneration reports
  • Lack of understanding of normalized profit frameworks
  • Incorrect year-on-year comparisons of key financial metrics
  • Incorrect details of shareholder approvals already in place.

Comments made by respondents outline some other important issues, including:

  • Difficulties in arranging meetings with one or more of the proxy advisers that cover their companies
  • Evidence of errors in reports, but no corrections made even when those errors are drawn to the adviser’s attention
  • Proxy advisers in some cases encroaching into areas traditionally covered in stockbroker reports, indicating that some level of regulation may be required.

Matheson says proxy advisers need to heed the concern of major listed companies and allow them to check the factual accuracy of their data before publication. ‘Aira would like to see a re-examination by the Australian Securities and Investments Commission to determine whether the carve-out proxy advisers currently have in their Australian Financial Services License (AFSL) for general proxy advice is appropriate.

‘All proxy advisers have AFSLs, but that covers only financial advice and not the vast majority of the other advice on resolutions at AGMs that they generate. It might be time for that to change.’

The survey received responses from 52 listed companies, 46 of which are in the ASX 200. 

An ACSI spokesperson stated that the Australian press has criticized ‘inaccuracies’ in the report. Spokespeople for ISS and CGI Glass Lewis did not respond to requests for comment.

In a statement to IR Magazine, Ownership Matters says: ‘Ownership Matters does not take the Aira report seriously. It is an anonymous survey, designed to slur, without a scintilla of corroborating evidence. Not a single complaint has been made to [the Australian Securities & Investments Commission] – the body which supervises our license – about errors in our reports. We complied with all four requests we received from issuers in 2018 to correct minor typographical errors including misstating a chairman’s age.’

Matheson dismissed negative coverage of its report.

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