Paatsch and co launch new advisory firm

Q: What is the "two strikes" rule and why is it important for investors this AGM season?

The two strikes rule targets executive pay: if a company’s remuneration report receives substantial opposition from shareholders two years in a row, it can trigger a vote on a board spill. Its debut makes this annual meeting season especially active for proxy advisors and investors because shareholder votes on pay can now have larger consequences for board composition.

THE shake-up in Australia's proxy advice industry continues, with the corporate governance advocate Dean Paatsch and two former colleagues launching a venture as this year's annual meeting season hits full swing.

By InvestSMART · 25 Oct 2011

By InvestSMART ·
25 Oct 2011

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The new firm, Ownership Matters, is headed by Mr Paatsch, Martin Lawrence and Simon Connal, all of whom previously worked at the Melbourne office of the US-owned proxy advisor Institutional Shareholder Services.

It comes amid the crucial annual meeting season, made more intriguing this year with the debut of the contentious "two strikes" rule on executive pay, which can force a vote on a board spill if enough shareholders oppose a company's remuneration report two years in a row.

It is the busiest time of the year for proxy advisors, who advise institutional shareholders how to direct their AGM votes on corporate governance issues such as executive pay.

But Mr Paatsch said the new venture would be a year-round operation, with a service advising clients on regulatory reform matters, and a "bespoke" service applying deep scrutiny to particular companies or issues at clients' requests.

He said Ownership Matters would also adopt a think-tank-like role, pursuing a "public research program" on wider corporate governance issues and market practices.

Billed as "independent and Australian-focused", Ownership Matters has snared one of ISS's big clients, the Australian Council of Superannuation Investors.

Mr Paatsch said it also had several other clients on its books.

The move comes just days after ISS announced Daniel Smith as the new head of its Australian operations, along with a plan to shift its operations from Melbourne to Sydney early next year.

ISS, along with CGI Glass Lewis, dominates the market in Australia and overseas.

Mr Lawrence and Mr Connal left ISS in the middle of this year, while Mr Paatsch, who founded Proxy Australia and then sold it to ISS in 2005, left last year.

The profile and influence of proxy advisors have expanded in recent years - the widespread coverage of their criticisms of global media giant News Corporation, before its annual meeting last Friday, being just one recent example.

But they have also drawn criticism from some high-profile directors that they wield too much power, that they are "too influential and have become de facto decision makers", in the words of the Australian Institute of Company Directors this month.

"We make bullets, we don't fire them," Mr Paatsch said.

"It's up to our clients to use our advice in a way that they think is going to serve their interests."

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Frequently Asked Questions about this Article…

What is Ownership Matters and who started this new proxy advisory firm?

Ownership Matters is a new Australian-focused proxy advisory firm launched by corporate governance advocate Dean Paatsch together with former Institutional Shareholder Services (ISS) colleagues Martin Lawrence and Simon Connal. The team previously worked in ISS’s Melbourne office and has positioned Ownership Matters as an independent, Australia-focused alternative in the proxy advice market.

What services does Ownership Matters offer to investors and institutional clients?

Ownership Matters offers year-round services including advice on regulatory reform, bespoke engagement and deep scrutiny of particular companies or issues at clients’ requests, and a public research program on corporate governance and market practices. It will also provide the sort of proxy-advice guidance that helps institutional investors with their AGM voting decisions.

How could Ownership Matters affect how institutional investors vote at AGMs?

Ownership Matters will supply advice and research that institutional clients can use when deciding how to cast AGM votes on governance issues such as executive pay. The firm has already won clients including the Australian Council of Superannuation Investors (ACSI), but as Dean Paatsch says, the firm provides recommendations — it’s up to clients to use that advice in the way they believe serves their interests.

What is the "two strikes" rule and why is it important for investors this AGM season?

The "two strikes" rule targets executive pay: if a company’s remuneration report receives substantial opposition from shareholders two years in a row, it can trigger a vote on a board spill. Its debut makes this annual meeting season especially active for proxy advisors and investors because shareholder votes on pay can now have larger consequences for board composition.

Who currently dominates the proxy advisory market in Australia?

The market in Australia is dominated by Institutional Shareholder Services (ISS) and CGI Glass Lewis. Ownership Matters aims to offer an Australian-focused, independent alternative and has already captured notable clients from the established providers.

Why have proxy advisors like ISS and Glass Lewis attracted criticism from companies and directors?

Proxy advisors’ influence has grown, and some directors and organisations argue they’ve become too influential — effectively shaping decisions at companies rather than just advising investors. Coverage of high-profile cases, such as criticisms of News Corporation ahead of its AGM, has highlighted that tension. Ownership Matters’ Dean Paatsch responded to such concerns by saying the firm "make[s] bullets, we don’t fire them," underscoring that clients control voting decisions.

What is Dean Paatsch’s background in corporate governance and proxy advice?

Dean Paatsch is a long-time corporate governance advocate who founded Proxy Australia and sold it to ISS in 2005. He later left ISS last year and has now launched Ownership Matters with former ISS colleagues, bringing deep experience in proxy advice and governance research.

Are there any recent changes at ISS that everyday investors should be aware of?

Yes. ISS recently announced Daniel Smith as the new head of its Australian operations and revealed plans to shift its operations from Melbourne to Sydney early next year. Two former Melbourne ISS staffers, Martin Lawrence and Simon Connal, left ISS earlier in the year and are now co-founders of Ownership Matters.