Josh Frydenberg warns of Labor ‘class warfare’ as Treasurer unveils $10b in tax cuts
Proxy overhaul headed for February showdown
Treasurer Josh Frydenberg’s contentious proxy advice regulations are set to be challenged in their first week of operation after independent senator Rex Patrick lodged notice that he will push for a disallowance motion.
Senator Patrick on Tuesday gave notice he would move a disallowance motion on February 10, days after Mr Frydenberg’s new laws come into effect.
Rex Patrick: “This government will do whatever it takes to meet the self-interested demands of big corporations.” Alex Ellinghausen
To succeed, Senator Patrick, Labor and the Greens would need to be joined by One Nation and either Jacqui Lambie or Stirling Griff, who has already indicated he would support such an action.
Shortly before Christmas, Mr Frydenberg announced the government would bypass a hostile Senate and crack down on proxy advisers by issuing regulations instead of passing legislation through Parliament.
The government’s Department of Prime Minister and Cabinet’s Office of Best Practice Regulation has criticised Mr Frydenberg’s regulations as “not consistent with good practice”.
The Office said the regulation “lacks sufficient evidence of a conflict of interest between proxy advisers and their clients and does not clearly demonstrate that the preferred option yields the highest net benefit over the status quo”.
Starting from February 7, regulations will come into force including the requirement for proxy advisers to hold an Australian Financial Services Licence (AFSL) and disclose recommendations to companies on the same day the advice is provided to clients.
The most controversial change, set to come into effect from July 1, will require proxy advisers to be independent from their clients, signalling the end to the current structure of the Australian Council of Superannuation Investors (ACSI), which is both owned by industry super funds and their main source of proxy advice.
On this point, the Office of Best Practice Regulation said: “Given the potentially significant impact on one of the existing proxy adviser firms, the RIS [Regulation Impact Statement] would have benefited from more thorough analysis as to why the conflict of interest requirements under the Australian Financial Services Licence would not have been sufficient alone to manage the potential conflict of interest between proxy advisers and clients.”
Senator Patrick told The Australian Financial Review that, to his knowledge, there hadn’t been a sustainable complaint to the corporate watchdog about proxy advisers. “Just complaints to the Treasurer from his corporate members and donors to the Liberal Party,” Senator Patrick said.
He also slammed Mr Frydenberg for unveiling the regulations when the Senate was between sitting periods, leaving the upper house unable to scrutinise the measure.
“It’s disgraceful but unsurprising – this government will do whatever it takes to meet the self-interested demands of big corporations,” he said.
“Proxy advisers call out anomalous corporate activity and things like the overpayment of directors. Understandably, they are an annoyance to company directors who would rather not have to deal with outside perspectives.”
Business groups such as the Business Council of Australia and the directors’ lobby have generally welcomed the new regulations. Institutional investors have slammed the moves.
Proxy advisers give non-binding recommendations to institutional investors on how to engage with companies in which they invest.
This often involves taking positions on remuneration votes and matters involving environmental, social and governance concerns.
The proposals have rankled the Australian Council of Superannuation Investors, CGI Glass Lewis, Ownership Matters and ISS.
Earlier this month global research house Morningstar described Mr Frydenberg’s regulations as “rushed” and “flawed”.