Shareholder activist Radzyminski slams proxy reforms

Shareholder activist Radzyminski slams proxy reforms

Treasury’s proxy adviser reforms will “further entrench underperforming listed company directors”, reduce management accountability and weaken shareholder rights, Sandon Capital founder Gabriel Radzyminski says.

Treasurer Josh Frydenberg’s proposed overhaul of the proxy advice sector would shield directors and management who oversee “far too many instances in Australia of persistently underperforming companies” from accountability and increase the regulatory burden and cost for superannuation fund members, Mr Radzyminski said.

Mr Radzyminski, who runs a portfolio of about $200 million and uses shareholder activism to shake up sleepy management in the interests of medium- and long-term investors, does not subscribe to any of Australia’s four major proxy firms.

But he said recent corporate scandals such as the leadership implosions at Commonwealth Bank, Westpac and National Australia Bank amid the banking royal commission, at Crown after the Bergin inquiry, and the rolling crisis at AMP since 2018 could have been avoided if the companies were not saddled with weak oversight and shareholders had pre-emptively been more engaged.

“Perhaps it is the recent spate of company directors and CEOs being forced to resign in the aftermath of these scandals that has caused these corporate agents to fear, perhaps for the first time, they may be held to account by their shareholders,” Mr Radzyminski says in a submission to Treasury.

Sandon Capital is listed on the ASX with a $100 million market capitalisation, and has launched more than 40 activist campaigns against company managers since 2009.

While some campaigns are friendly, others have been hostile. Sandon helped to turn around Bluescope, and has argued for restructures and asset sales at Tabcorp, Boral, Iluka Resources, CML Group, Fleetwood Corporation, Watpac Group and Gindalbie Metals.

Mr Radzyminski’s flagship fund has returned 13.2 per cent a year after fees over the past five years, versus 10.2 per cent for the benchmark.

The proposals would ultimately lead to increasingly timid and homogenised superannuation fund voting.
— Gabriel Radzyminski of Sandon Capital

Treasury’s seven-page consultation paper released in April proposed new rules that would force proxy advisers to share their draft research with companies five days before their clients receiving it, and junking the Australian Council of Superannuation Investors.

Mr Radzyminski said the paper painted a picture of corporate Australia “under siege by an unregulated and unfettered proxy advisory industry, prone to errors and mis-statements”.

“There is no evidence to support this,” he said. “It offers no evidence of instances where proxy advice has been manifestly wrong, nor does it offer evidence of any harm that has occurred.

“The narrative from Australia’s corporate agents and their lobbyists implies that they are facing an avalanche of failed resolutions at annual members meetings. It would seem shareholders are feeding rocks into the gears of corporate Australia and decision-making will soon grind to a halt.”

‘No terror in the bang’

Of almost 7500 non-executive director elections over the past decade, the average vote in favour was 96.2 per cent. Only six candidates were defeated.

No board of an ASX 300 company has been spilled following a second strike vote, and of the 1321 resolutions proposed by ASX 200 companies in 2020, only 36 votes went against the company.

Mr Radzyminski said directors and management were anticipating the worst from the proxy advice sector, but borrowed a phrase from Alfred Hitchcock: “There is no terror in the bang, only in the anticipation of it.”

He said the Treasury paper’s proposal to force super funds to disclose where their votes strayed from the advice of proxy firms mistakenly asserted that proxy advice was the sole determinant of how superannuation funds vote their shares.

The proposal to split ACSI from its super fund owners mistakenly supposed that independence was “the sole arbiter of sound advice”.

“The proposals would ultimately lead to increasingly timid and homogenised superannuation fund voting. We firmly believe that a diversity of views is essential for not only good governance, but also effective operation of a market-based economy,” Mr Radzyminski said.

The proposal to run draft advice before a company board ahead of clients was “problematic and concerning”, given boards were already legally required to give any relevant information to shareholders, and any information relevant to an AGM vote would have to be disclosed in an explanatory memorandum.

“It would be highly intrusive and inappropriate to attempt to regulate or legislate what information shareholders can consider,” he said.

Forcing proxy advisers to lose their intellectual property rights was also a “gross infringement” and “could set a very dangerous precedent for anyone or any company in the business of providing advice”.

“While Australia does not have any constitutional protections of free speech, this does not mean government should actively seek to reduce one’s ability to speak freely.”

Licensed by Copyright Agency. You must not copy this work without permission.
Author: Michael Roddan
Published: Jun 9, 2021
Source: The Australian Financial Review