Direct member voting presents a ‘practical challenge’

Proxy advice provides an efficient and thorough way to handle voting decisions, as having fund members do so directly will present a “practical challenge”, the Australian Council of Superannuation Investors (ACSI) has argued before the common ownership inquiry.

Committee chair Tim Wilson said his own self-managed superannuation funds (SMSF) gave him the ability to directly vote on all matters and asked why super funds which had millions of members could not do the same.

“I have an SMSF so I am welcome to exercise my voting rights as I see fit and if I want to seek out proxy advice then that’s my decision,” Wilson said.

“So why shouldn’t every other Australian have that as a default setting?”

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Ed John, ACSI executive manager, governance and engagement, said: “In a large part it would go back to the practical challenge of executing on behalf of hundreds and thousands, if not millions, of fund members.

“Part of a functioning market economy is that you have institutional shareholders judiciously casting their votes and turning their mind to these issues, that’s a good thing to have that diversity of view in the market.”

Wilson questioned if that was truly diverse as a narrow view of fewer institutional players led to “group think”, which John disagreed with.

“That expertise and people spending the time judiciously to do it with members’ best interest in mind and to report their voting outcomes is a strong tradition in the Australian market,” John said.

“I haven’t seen too many jurisdictions where there’s direct-drive voting of pension fund assets for millions of retirees, but I’m not sure if you’ve seen those.

John said there’s value in having expert managers making educated decisions instead of members having to micromanage their own funds.

“You have over 200 meetings in eight-week period which are quite complex and detailed issues to work through and compare, that’s why proxy advice is a useful input,” John said.

Proxy advice reports

Coalition MP Jason Falinski asked why they could not share their reports to the companies they reported on to “correct any mistakes” in the report.

Lousie Davidson, ACSI chief executive, said they did present companies with their reports at the time they publish them to members, but it was a problem to do so in advance of that.

“I should clarify that I don’t think we’ve ever had an event where a company found a report to have a material error,” Davidson said.

John said it would be a breach current financial services law and its Australian financial services licensee (AFSL) obligations to do so.

“Providing details selectively to companies that are subject to the research before publishing is actually banned under the AFSL regime,” John said.

“We’d be creating a special carve-out for proxy advice which would be completely inconsistent with those provisions that operate for many other forms of advice including broker recommendations.”