Super funds call Australian firms to account

Australia's corporate heavyweights have been put on notice by sharemarket activists to get their houses in order at their annual meetings.

The activists, including superannuation fund leaders and shareholder advocates, outlined their strategies to company executives at a seminar this week and warned that AGMs this year will not be a box-ticking exercise.

One governance expert, who monitors Australia's top 200 companies, said his clients had told him to raise the bar to 10 and they would decide how far they wanted the companies to jump.

Super funds are fast becoming a growing force in the market and are responsible for the retirement savings of millions of Australians.

It is projected that within 20 years super funds will total A$1.7 trillion ($1.9 trillion), much of it invested in the sharemarket.

Sandy Easterbrook, a director at Corporate Governance International (CGI), said the level of voting at annual meetings by the super funds had been increasing over the past few years.

"Protest votes are growing, and in some cases have reached the stage where the company has withdrawn the resolution from the agenda," he said.

Last year, several directors quietly withdrew their nominations for re-election after a significant number of proxy votes went against them.

"There is a growing interest by super funds and greater questioning by super fund trustees on contentious issues," said Easterbrook.

"We think we know where the bodies are buried. We think we know where the problems are, and where the governance issues are."

CGI has a track record for twisting arms. With the Australian Council of Super Investors (ACSI), it won additional provisions to protect shareholder rights when Rupert Murdoch shifted News Corp's base to the United States last year.

Council president Michael O'Sullivan said that in order to win mandates in the future, fund managers would have to pay more attention to company issues.

O'Sullivan, whose fund handles the superannuation investments of 34 public sector and industry funds, said shareholders at this year's annual meetings would gain an insight into the corporates' remuneration policies through a non-binding resolution.

The vote allows shareholders to air their approval or disapproval of a company's remuneration policy but the directors do not have to act upon the outcome.

"Companies will be required to explain their remuneration policy in detail and the way it applies to their executives," O'Sullivan said.

"If it's satisfactory, it will get a tick, but if it's seriously unsatisfactory people will vote against it."

Justin Wood, chief executive of Barclays Global Investment, said their strategy was to take a large number of small positions on company issues.

Wood is also on the board of the Investment and Financial Services Association, whose 115 members are responsible for investing A$800 billion on behalf of 9 million Australians.

He said 45 per cent of the association's concerns dealt with company remuneration and another 45 per cent with board issues.

"We always view our investments as a long-term shareholder to try to increase benefits and governance."

Wood said that for the first time this year, the association had told members to vote on all resolutions at annual meetings.

Superannuation trustees were recognising that good governance in companies had positive value, he said.

"There is a lot of money invested in the Australian equities market and the voting rights are valuable rights which need to be exercised appropriately."

- AAP