Retail shareowners own about 1/3 of shares traded in the United States but vote only about 1/3 of the shares we own. Moreover, when we do vote, we frequently do so by blindly or unknowingly voting with management. In Part 1 and Part 2 of this series, I explored five internet platforms that were designed to increase knowledgeable participation by retail shareowners. In this post I start to take a look at the Australian Shareholders’ Association (ASA) as a potential model for the United States. The following is largely drawn from Wikipedia and from the ASA’s internet site.
The Australian Shareholders’ Association (ASA) is an independent, member-funded, not-for-profit representing Australian retail investors, at least at Australia’s top 200 ASX-listed companies. The ASA was founded in 1960, so they certainly have a head start on anything we could cobble together here in the US.
Their mission is ‘Standing up for shareholders.’
- Although they are standing up for shareholders, they are also educating them not only about their rights but also about investment fundamentals… so like CorpGov.net and the sites previously discussed, they are concerned with corporate governance but like The Motley Fool or Seeking Alpha, they are also concerned with stock picking and investment analysis. Initial discussions about stock picking and developing issues could lead to talk about corporate governance, if the right people are i the room. Interest could spread from holding to owning.
- They have membership meetings based on geography and specific companies… maybe more. I’m still exploring. Frankly, I’m tired of traveling to distant cities to discuss corporate governance.
- They act collectively, not only before government, regulatory bodies and stock exchanges, but at the annual meetings of issuers. They develop their own proxy voting policies, analyze how those apply at specific companies before the annual meeting, collect proxies from members and vote them at the meetings. Last year, ASA company monitors voted more than $3 billion worth of shares. We did some experimentation at the United States Proxy Exchange in the direction of assigning proxies to each other, so I know it can be done here. Going to a meeting with a significant proportion of the votes could be a powerful tool. We should be able to accomplish more when working together than alone.
Here’s a few more highlights:
The ASA helps members to improve their investment knowledge and financial literacy with free member meetings, discussion groups and cost-effective education across Australia, including many regional areas. By providing independent research, governance information and well-priced education programs the ASA helps members develop practical skills to improve their investing knowledge…
Company monitors represent the ASA at AGMs, where issues such as executive remuneration, company performance, shareholder rights and director qualifications/workloads are discussed, and proxies voted. AGM Reports are prepared by the company monitors and are available online so members can see how Australia’s leading companies are performing, and how effectively they’re managed.
While opinions of the ASA vary widely depending on who you talk to, it does seem to be among the most successful systemic engagement of retail shareholders at the board level I have observed anywhere, in both directions (the board with shareholders and shareholders with the board). See the International list of organizations organizing Individual Investors on our links+ page.
According to one of my contacts:
The deepest levels of engagement between boards and shareholders come when there are “champions” on the board who are able to raise this as a high priority, and create facilities for this engagement such as writing letters to shareholders on key issues that are then published on the company website (area for investors) and seeking feedback which is then considered. This is rare, but where I have seen it occur it has been extremely successful in changing voting patters and more importantly increasing the quality of understanding among retail shareholders.
In Australia I think there have been a number of factors, and aside from the important role of changes in regulation that gave shareholders, particularly minority groups of shareholders, more power, there is one other factor that I think has been critical. I understand that in the USA you have 401K contribution plans. In Australia we instead have superannuation whereby the employer must contribute a set amount of remuneration into superannuation, and the employee has a choice about which fund that goes to and may even start and elect for the contribution to go into a “Self Managed Super Fund.”
Due to the poor performance of a lot of managed funds, these SMSFs are becoming more and more popular, so that now a lot of Australians invest their own retirement funds from employer contributions into a broad range of ASX listed companies. Such individuals cannot afford proxy advisor advice and the ASA has played an important role in getting affordable advice across a broad range of ASX listed companies to their members, many of whom run SMSFs. While the history of the ASA is much longer than either the changes to regulation or SMSF arrangements, these factors have certainly been key to the rise in their profile and importance over the last few years.
The other obvious comment I would make is that in Australia, there is a law stating that directors are automatically removed and must stand for re-election when two “Strikes” are given by shareholders (in a row) at AGM’s. While a strike only occurs when 25% or or more votes are against the remuneration report of the company (yes it is indeed a minority), this has also led to the biggest change in the quality and extent of disclosure by ASX listed companies observed in modern times (and this is an ongoing process as more and more companies face activism from shareholders).
Some may or may not agree that a strike should be limited to the remuneration issue, or whether it should exist at all, but it has actually led to much broader consideration by boards of shareholder activism and the way in which they communicate with shareholders. Some shareholders have mis-used this mechanism to protest non-remuneration decisions/practices of the Boards of companies, and on the one hand this is an abuse of the system, on the other than it has actually led to a sense that boards are more accountable to shareholders than ever, particularly retail shareholders who can together often reach that minority 25%. Thus the link between this law and the rise of the ASA (my comments above) is not coincidental.
In the UK we have a couple of retail shareholder groups – the UK Shareholders Association and Sharesoc – which regularly attend meetings. Some companies probably do not take them particularly seriously, but a number of companies, particularly in the medium range, do engage with them and arrange investor days etc. They are also very good at getting the ear of Government and the press.
One of the big issues in the United States is that most people don’t own stock directly but instead do so through mutual funds or collective investment trusts (CITs) in their employers deferred compensation plans. Mutual funds are required to report their proxy votes, six months after the fact, but CITs are not, since they don’t offer funds to the general public. Additionally, even though mutual funds are required to announce their votes, deferred compensation plans aren’t required to link to them.
The last time I looked (a few years ago), only about 10% of retail shareholders voted in the US. Because those with the most shares generally vote more frequently than average, about 30% of retail shares are voted. Of course, mutual funds and other institutional investors always vote, since they have a legal obligation to do so. However, that legal obligation only extends to voting “in the best interest” of fund holders. Since that is difficult to measure, many don’t put much effort into it.
As far as I know, the ASA does not address the governance of managed funds in Australia. Another concern is funding. I love the fact that ASA collects proxies from its members but is that a cost-effective activity? Which activities should be automated? Are they making the most of possible algorithms? We need to know what problems ASA faces and which of their activities should take first priority with any United States version. I would appreciate hearing from anyone who has insight into ASA and which aspects of their operations would be most readily transferrable to the United States. Of course, I would also love hearing from anyone interested in helping to create such an organization.