Rejected proxy advice reforms a ‘defeat for Treasuer Frydenberg’

On Thursday (10 February), independent senator Rex Patrick’s move to disallow the regulations – which proposed that advisers must have an AFS licence to provide advice to institutional shareholders, to simultaneously share corporate governance advice to shareholder clients with the companies they are providing advice on and to be independent of their institutional clients by 1 July 2022 – succeeded by 29 votes to 25.

Labor MP Andrew Leigh applauded the decision in the Senate on Thursday, calling the regulations an “attack” on proxy advisers.

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“That is a defeat for Treasurer Frydenberg and his underhanded attempt to undermine the proxy advisers,” Mr Leigh said.

“It’s a defeat for Arnold Bloch Leibler, the firm that pays the Treasurer’s pro-bono legal bills and has campaigned against the transparency that proxy advisers bring and it is a victory for shareholder capitalism, for transparency and for small business in Australia.”

Morningstar ESG analyst Erica Hall – who criticised the reforms last month – said the Senate’s overturn was “the best outcome for investors”.

“The intended benefits were unclear because there had not been open discussions with all stakeholders,” Ms Hall said.

“The process itself has been controversial, made in the name of ‘transparency and accountability’, which was ironic as the process by which the reforms were introduced were not transparent.

“It remains difficult to understand why it was necessary to take such an approach.”

Earlier, the Australian Council of Superannuation Investors (ACSI) CEO Louise Davidson slammed the proposal, saying it was “rushed through without parliamentary scrutiny and with no justification, rationale or harm identified”.

“Proxy advisers faced more onerous red tape and fines of up to $11 million for small administrative errors, and unprecedented rules regulating ownership of advisers,” Ms Davidson said.

“We are pleased to see the Senate voted to ensure the system that has been working well to deliver quality advice that supports investors and millions superannuation fund members is maintained.”

Meanwhile, Jane Rennie – CPA Australia’s general manager external affairs, policy and advocacy – also applauded the news, saying the accounting body has had significant concerns about the legislation for both advisers and superannuation fund trustees.

“Proxy advice is part of a bouquet of information that funds take into consideration in their investment decisions. Although these reforms were aimed at proxy advisers, we were concerned that the same arguments could be made to require access to other types of advice provided on a confidential basis to trustees,” she said.

“Superannuation funds engage in a variety of activities designed to generate economies of scale, include outsourcing the provision of investment advice to proxy advisers. This is a cost effective way to provide value to members. Making trustees jump through increased compliance hurdles to access advice would not have been in members’ best financial interests.”