Frydenberg earns a fail rating

The Federal Treasurer, Josh Frydenberg, has received a negative rating from one of Australia’s leading funds management research and ratings houses over the Government’s changes to the rules around proxy advisers.

Morningstar has issued a damning analysis of the Government’s approach to proxy advice saying that it is “flawed as [the changes] place undue pressure on a sector that has been effectively highlighting corporate issues, helping institutional clients identify weaknesses and mitigate risks, and ultimately improving investor outcomes”.

The Morningstar critique suggests that the Government’s legislation is “skewing the balance of power in favour of companies” resulting in something which will “not necessarily be a positive outcome for shareholders”.

“Changes have been brought in the name of improving governance, but it is hard to see how watering down proxy adviser’ ability to operate will improve investor outcomes,” the ratings house said.

The Morningstar critique even goes so far as to suggest that without the influence of proxy advisers, AMP would not have been held to account over its appointment of Boe Pahari as chief executive of AMP Capital.

Morningstar said that while the Treasurer had promised more transparency and accountability for proxy advisers, the changes appeared to have changed little but had serious ramifications for the industry itself.

Further, it noted that the changes had not passed through Parliament as legislation but, rather, by way of regulation.

“Proposals were not offered for public comment. No parliamentary oversight was possible, as the normal processes were sidestepped in favour of quick reform,” Morningstar said. “The justifications provided—namely improved governance and accountability—stand in stark contrast to the reform process’ own lack of transparency and accountability.”