The chairmen of Perth companies South32 and Alexium International Group have singled out global firm Institutional Shareholder Services for criticism amid ongoing debate over the role of proxy advisers.
The chairmen of Perth companies South32 and Alexium International Group have singled out global firm Institutional Shareholder Services for criticism amid ongoing debate over the role of proxy advisers.
ISS recommended shareholders vote against some of the key resolutions at the recent South32 and Alexium annual meetings.
As a result, they joined Mineral Resources, Commonwealth Bank, AGL Energy and Goodman in suffering a large protest vote on their remuneration report.
Many company directors have lashed out at proxy advisers as a group, along with the institutional investors that are accused of blindly following their advice.
South32’s David Crawford and Alexium’s Gavin Rezos believe the problem rests with ISS.
“We understand proxy advisers play an important role in advising their clients,” Mr Crawford told South32 shareholders last week.
“With this comes a responsibility to ensure the advice is robust and not formulaic.
“This includes understanding the company context, the business and industry specifics, rather than simply applying a formulaic approach.
“We are pleased that three major proxy advisers adopted this approach, however there is one proxy adviser that causes me some concern.”
Mr Crawford said the ISS had failed to share its report before publication, and it contained multiple errors.
Mr Rezos contrasted the approach of ISS with Australian firm Ownership Matters, which recommended voting in favour of all resolutions at the company’s annual meeting after detailed engagement with management.
“The difference in approach between ISS and Ownership Matters is paramount,” he said.
Mr Rezos said ISS failed to engage with the company in the lead up period before the meeting and adopted a formulaic approach.
“There is no qualitative review by ISS,” he said.
“Alexium, having just entered the ASX300, is judged on the same metrics as BHP Billiton.
“Clearly reports made on that basis are lacking in utility and are misleading as to the current affairs of the company.
“Compare that approach to that of Ownership Matters, which look at the business, engage management to understand the history, progress and trends, and then make recommendations for the future in a helpful way.”
ISS principal Vas Kalesnikoff was unmoved by the criticism, saying its research was based on publicly available information using review criteria on its website.
Mr Kalesnikoff stood by ISS’s major argument that South32’s short-term bonus scheme was overly generous.
He said it was South32, rather than ISS, that was formulaic, because while chief executive Graham Kerr hit several of his performance goals, the determination of his bonus should have taken greater account of the company’s poor financial and safety record.
He suggested a reasonableness check should be applied.
Mr Kalesnikoff said the disputed details aired by Mr Crawford just muddied the waters.
For instance, Mr Crawford said ISS mistakenly claimed his chairman’s fee had increased by 10 per cent.
Mr Kalesnikoff agreed the base fee was unchanged at $550,000 but said it was more relevant to focus on Mr Crawford’s total remuneration to $645,000, which included travel allowances.
“You have to dig down into the intricacies,” Mr Kalesnikoff said.
“We look at a lot of different ways companies skin the cat.”
In regard to Alexium, he said ISS has a policy that chairman of ASX300 companies should have just one other board position.
Mr Rezos breaches this policy because he is also a director of Iluka Resources and Department 13 International, and a principal of Viaticus Capital.
Mr Kalesnikoff said companies wanting to engage with ISS should arrange meetings three to four months before their annual meeting, rather than in the weeks before.
