Funds should show how they voted

When the government privatised some of our biggest companies and the co-ops demutualised in the 1990s, it was hailed by some as a great leap forward in shareholder democracy.

It looked as if the cosy corporate club was in for a shake-up as shareholder associations organised some of those first-time shareholders, particularly selffunded retirees with sizeable share portfolios, to agitate for change.

But the real power of small shareholders lies with their super funds.

As our retirement savings pool grows  thanks to compulsory contributions  super funds power to influence corporate governance over companies is increasing.

Small shareholders rarely influence the votes on resolutions at a companys annual general meeting. They get angry at executive greed and poor performance but cant do much about it. When small shareholders do agitate at AGMs they can be safely treated with indifference by the executives on the podium.

Typically, the biggest 20 shareholders of a big listed company will own 70 per cent or 80 per cent of the shares.

Most of the disagreements that the institutional shareholders have with company management, when they bother to engage, are sorted out behind closed doors. While super funds are voting more, how they vote and the reasons they vote are mostly kept to themselves.

The two strikes law introduced in July will make a major difference to corporate behaviour.

Under the law, if a company receives a vote of 25 per cent or more of votes cast at two consecutive AGMs against the companys remuneration report, shareholders are able to call a meeting. If a majority of shareholders vote in favour of a board spill, a fresh election of all directors must occur within 90 days.

Some of those companies to record no votes in the first strike under the two-strike rule this reporting season include Pacific Brands and Crown.

Pacific Brands paid senior executives a total of almost $3 million in bonuses, despite failing to meet performance targets set by the company itself. There is likely to be more no votes in coming weeks.

Shareholders (and the general public) are rightly angered about the obscene salaries and bonuses paid to senior executives that have little relationship to the returns of shareholders.

The owners of those shares are the members of the super funds. The funds should be exercising their votes and disclosing how they voted on their websites for fund members to see.

That is how true shareholder democracy will take hold. As part of its proposed reforms to super, the government has asked regulators to look into whether large super funds should be required to publish their voting policies and procedures and disclose their voting behaviour to members on their websites.

Given the compulsory nature of super savings, this is a proposal that should become law. Compulsory disclosure would put pressure on super funds to engage more on corporate governance issues.