Together with the development of the funds management industry, and particularly its important place in Australia's development as a financial centre, and the development of the sophistication of the Australian retails market, comes responsibility. And the responsibility of the funds managers is to ensure we have liquid markets, is to ensure that their members get a good return on their investments.
But they also have a responsibility to be good corporate citizens and good shareholders. And funds managers and trustees have a responsibility in particular to make boards accountable for the decisions they make on behalf of shareholders.
It is not good enough for funds managers to be lazy at annual general meetings. Funds managers and trustees have to exercise their votes on behalf of their members in the best interests of the company.
And if the board and directors are not acting in the best interests of the company or make decisions that they should he held accountable for, it is not good enough for funds managers to run away and not face up to the tough tasks of holding those directors accountable for their decisions.
And it comes from the fact that in Australia funds managers and trustees hold 50% - just over 50% - of the shareholdings in publicly listed companies. And yet, only 30% of the votes exercisable at annual general meetings are in fact exercised at that annual general meeting, which is lower than the United States and the United Kingdom.
And whilst corporate Australia has a responsibility obviously to act lawfully and in the best interests of its shareholders, it also has a responsibility to he held accountable for its decisions. And they include decisions pertaining to the recommendations of directors' appointments to boards.
Funds managers and trustees have an opportunity to break down the traditions of the boardroom clubs of Australia and put in place diverse representations on boards, including representation of more women on boards and people from more diverse backgrounds than simply the law or the accounting professions or some of the industrial behemoths of Australia.
They have a responsibility to put in place directors who bring a new, fresh and open approach to what has been previously held up as traditional lines of discussion around board tables.
So when funds managers do not exercise their voice, when funds managers with a wink a and a nod agree to appointments in expectation of return appointments and other (inaudible) it is not good enough in the eyes of the members of the funds nor in the eyes of other shareholders in those companies.
And if you think I am holding back in relation to the treatment of boards and directors then you are misunderstanding my statement. Because we are approaching the annual general meeting season in Australia and I see corporate governance and corporate accountability as one of the key issues which distinguishes us from other parts of our region.
It is also a very important part of the dynamism of the modern Australian marketplace. And when more than half of the shareholders of Australia are not given a proper voice at annual general meetings or extraordinary general meetings or people go into or directors go into annual general meetings or extraordinary general meetings having worked out deals that are not necessarily in the best interests of the shareholders of the company all the shareholders of the company including the mums and dads who whilst representing only one vote or more than one vote at an annual general meetings are sometimes subject to practices that go very close to those that might be described as oppression of minorities then it is up to the funds managers and trustees of those funds to exercise proper discretion and consider the interests of all shareholders when they exercise their vote.
Question from the floor.
[Question inaudible]
I expect corporate governance ranks quite low on the scale of priorities for funds managers. In some cases, and I understand this, trustees explicitly deny funds managers a role in attending meetings and AGMs. In fact some trustees have indicated that they will not participate in the voting structure either. Now there might be some sound reasons for that. However, I don't find them particularly attractive. If people become concerned about their position in a market because they are exercising their votes at an annual general meeting that may not be attractive to that company, then perhaps they should put in place articles that allow blind proxy voting.
But it is not good enough for trustees to say that it is okay for them to be a shareholder but they themselves do not exercise the full gamut of responsibilities to act as a shareholder. We want Australian shareholders to be active at annual general meetings and extraordinary general meetings. We want Australian shareholders to exercise their rights not just as an investor in the company, but also their rights as a member of the company. That extends right from holding the board accountable through to ensuring they get a good return on their investment.
Later speaking with reporters.
JOURNALIST: (inaudible) do you think the AMP board yesterday went far enough with the appointment of two new directors?
MINISTER HOCKEY: Well I am not going to comment on any particular board or any particular company. What I am going to focus on is that funds managers and trustees control more than 50% of the share exercisable at annual general meetings, and therefore they have a responsibility to hold boards accountable for the decisions that they make during the course of the year. And it not good enough for them to have a quiet conversation on the side with some of the directors, saying, "you need to lift performance and improve the value of the stock for shareholders". It has to be a broader form of accountability for directors.
JOURNALIST: Do you think proxy voting should be mandatory?
MINISTER HOCKEY: Well this is a debate that is happening in the United Kingdom. We are obviously not inclined to follow that route. But we would like to see a greater involvement by all shareholders in annual general meetings.
JOURNALIST: You have said you won't comment on the AMP, but what prompted these comments?
MINISTER HOCKEY: We are not far away from the company-reporting season. We are not far away from annual general meeting season. Australia's funds management industry is approaching $US500 billion and it is now a more significant player than it has been in the past. Therefore, it has a greater responsibility to exercise all of its tasks as a shareholder and not just simply focus on the day-to-day share price.
JOURNALIST: How can the Government make companies stand up in terms of corporate governance?
MINISTER HOCKEY: This is a word of encouragement to the funds management to become more involved. This is a word of encouragement to those millions of mums and dads who are first time shareholders - the everyday Australians who have invested in shares for the first time - that their responsibility as shareholders is not just about receiving a proper return. They should hold the directors accountable and responsible for the decisions they make during the course of the year that affects the value of the company. So if a share price is not performing then I encourage shareholders to put pressure on the board to explain why it is not performing.
If there is an individual transaction or an individual payment by a company to a senior executive or a contractor, then shareholders have a right to ask directors why they made that payments [inaudible] or what appears to be over-the-top remuneration unless it is justified.
JOURNALIST: Are you saying Australian companies are falling down on the job recently?
MINISTER HOCKEY: Well, I think Australian funds managers have tended to be lazy when it comes to issues of corporate governance. Australian funds managers and trustees, on behalf of the members of the funds have a responsibility to ensure that corporate governance is high on the list of priorities when it comes to assessing good returns for their members.
JOURNALIST: Can you give an example of this laziness?
MINISTER HOCKEY: No.