MELBOURNE, Australia - The formation of an Australian proxy-voting advisory service, and its alliance with a U.S.-based organization, suggest Australian institutional investors have discovered shareholder activism.
And Australian pension funds are expected to soon become involved in corporate governance issues.
The new Australian organization is Independent Shareholder Services, a joint venture between The Partners Group, a Sydney-based investment bank, Institutional Shareholders Services, Washington, and another firm called Corporate Governance International, also in Sydney.
Already the 50 largest listed companies in Australia have received questionnaires from Independent Shareholders Services seeking information.
The formation of the venture shows the corporate governance debate in Australia is well under way, but there still remains a question of who will wield the power and how it will be exercised.
The answers are beginning to appear as Australian pension funds - particularly the fast-growing industry funds - learn more about what has happened in the United States and United Kingdom.
The industry funds are defined contribution plans, usually controlled by employer-and employee-nominated trustees. The funds were established largely under the impetus of trade unions, and now receive much of the compulsory employer contributions to the Australian Government's Superannuation Guarantee scheme. Under this plan, employers must contribute up to 6% of pay to an approved retirement fund for every employee.
The funds now total about $8.5 billion Australian ($11.1 billion U.S.), and the largest funds have been growing at a rate of 20% to 25% a year over the past two years.
Earlier this year, the industry funds heard from U.S. pension fund experts, including officials from the California Public Employees' Retirement System, about U.S. corporate governance practices.
While Australian funds' shareholdings are nowhere near the size of those of some major U.S. funds, their trustees can see the logic in talking rather than walking, i.e. attempting to negotiate improvements in corporate performance rather than selling their holdings.
Now they will have a proxy advisory service to help them step up their corporate governance efforts.
Initially the key customers for the service are expected to be the major investment managers and the large institutions, including many pension funds.
But one key issue yet to be resolved is whether the Australian Investment Managers Association, comprising the major Australian fund managers, or the pension funds - through the Association of Superannuation Funds of Australia - will drive corporate governance activity in Australia.
Until now, the AIMA members have done most of the running, although much of the money managers muscle flexing is done behind the scenes rather than at the companies' annual general meetings.
A recent survey of fund managers commissioned for the Australian Institute of Superannuation Trustees has found many fund trustees have been unaware of these activities.
The president of AIST, Ian Court, who is also a senior official in the Australian Council of Trade Unions, complained the weight of superannuation money was being used to influence companies without fund trustees knowing about it. Ian Mathieson, AIMA executive director, said most trustees have never asked. One reason might be there is a legal gray area over who has the responsibility for voting the shares.
Unlike U.S. pension funds, Australian institutions are not obliged to lodge proxies or vote their shares at corporate meetings.
However, major institutions now are prepared to exercise their power directly. In August, the board of Goodman Fiedler Wattie Ltd., a poorly performing food company, was effectively reconstructed by several major institutions, including Bankers Trust Australia, the AMP Society and the New South Wales State Superannuation Board.
In 1993, institutional investors flexed their muscles to block a plan by Rupert Murdoch to issue super-voting shares to maintain control of News Corp.
News Corp. subsequently made a free issue of one new non-voting preference share for every two ordinary shares to achieve the same result.
Both the AIMA and the AIST are forging links with overseas organizations. The AIMA has formal links with the Council of Institutional Investors in Washington and has suggested talks to establish an international forum to allow large investors to exchange information.
Similarly, the Australian union movement and key industry funds have invited North American and British corporate activists and proxy experts to visit Australia.